If price performance is any indication, teen retailer Abercrombie & Fitch Co. (ANF) stock has fallen so far out of favor with its mainstream consumers that hipsters may start buying Abercrombie just to be contrarian. Year-to-date, ANF stock has plunged more than 42%, with the recent market selloff pushing the shares toward lows not seen since the 2008 market crash.
Unfortunately for ANF stock holders, analysts aren’t projecting more of the same for Abercrombie’s second-quarter earnings report.
By the numbers, Wall Street is forecasting a second-quarter loss of four cents per share for Abercrombie, down sharply from a profit of 19 cents per share in the same quarter last year. Furthermore, revenue is seen falling 8.8% to $812.03 million on the quarter.
As a result of ANF’s poor price action and declining revenue, the brokerage community has drummed up quite a bearish following for the stock. According to data from Thomson/First Call, analysts have doled out 27 “hold” or worse ratings, compared to just five “buy” ratings. Surprisingly, the 12-month consensus price target of $20.50 represents a somewhat optimistic premium of 24.6% for ANF stock, though with the shares’ current performance, this target could be revised downward.
Even short sellers are getting in on the act. As of the most recent reporting period, 22.5 million ANF shares were sold short, accounting for 32.9% of the stock’s total float, or shares available for public trading. While this could represent fuel for a sizable short-covering rally, ANF would have to stage a major rebound at this point in order for short sellers to be squeezed into buying back their positions.
Judging from ANF options activity, short sellers are not worried in the least. Currently, ANF’s August/September put/call open interest ratio comes in at a modest reading of 0.76. That said, this ratio surges to a reading of 2.38 for the weekly Aug 28 series of options, with calls more than doubling their put counterparts. Since calls are typically used by short sellers to hedge their bets against a rally, they are clearly feeling no pressure from a potential squeeze play.
Click to Enlarge Overall, weekly Aug 28 series implieds are pricing in a potential post-earnings move of about 8.5% for ANF stock. This places the upper bound at $17.90, just below potential technical resistance at $18, while the lower bound lies at $15.10 — another fresh multiyear low for the stock.
2 Trades for ANF Stock
Put Spread: Those traders looking to jump on the bearish bandwagon might want to consider a Sep $15/$16 bear put spread. At last check, this spread was offered at 48 cents, or $48 per pair of contracts. Breakeven lies at $15.52, while a maximum profit of 52 cents, or $52 per pair of contracts, is possible if ANF closes at or below $15 when September options expire.
Call Sell: If betting directly against ANF stock isn’t your style, you might consider selling a weekly Aug 28 series $20 strike call. Such a trade is especially useful if you already own ANF stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $20.
As of the close on Friday, this option was bid at 68 cents, or $68 per contract. A sold call allows you keep the premium as long as ANF stock closes below $20 when weekly August 28 series options expire at the end of this week. On the downside, if ANF rallies above $20 prior to expiration, you could be forced to provide 100 shares of ANF for each call sold, which could be quite costly if you do not have enough ANF stock on hand to cover the call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.