Michael Fowlkes' Analyst Insights
Options and ETF Analyst Writer
Target reports first-quarter earnings May 17
5/13/2017 11:52 AM
Retailer Target (TGT) will report the results of its first-quarter on May 17. The company will report before the market opens, with analysts calling for earnings of $0.89 for the quarter. During the same period last year Target earned $1.29, and the stock is down 23.4% on the year.
TGT was recently trading at $55.70, down $23.63 from its 12-month high and $2.98 above its 12-month low. Technical indicators for TGT are bearish and the stock is in a strong downward trend. The stock recent support above $53.10 and has recent resistance below $58.65. Of the 17 analysts who cover the stock, three rate it a “strong buy”, 11 rate it a “hold”, and three rate it a “strong sell”. The stock receives S&P Capital IQ's 3 STARS “Hold” ranking.
It has been a tough year for Target, but enthusiasm has started to return to the stock. Shares hit a bottom in early April, but have begun to rebound over the last month. With shares down over 23% on the year, the stock's P/E has dropped to 11.9, so the downside at this point is probably limited as long as the company does not post a major earnings disappointment. Earnings are forecast to fall 31% year over year, but the earnings drop has already been priced into the stock, and should not result in a sell off as long as the company is able to hit its estimate. The street expects a slight earnings beat, with a whisper of $0.93, four pennies above the consensus.
Stock Only Trade
If you're looking to establish a long stock position in TGT, consider buying the stock under $55.75. Sell if it falls below $50.00 or take profits if it gets to $64.00.
If you want a bullish hedged trade on the stock, consider a July 45/50 bull-put credit spread for a 50-cent credit. That's a potential 11.1% return (58.0% annualized*) and the stock would have to fall 9.3% to cause a problem.
If you are looking for a bearish hedged option trade on TGT, consider a July 62.50/67.50 bear-call credit spread for a 25-cent credit. That's a potential 5.3% return (27.4% annualized*) and the stock would have to climb 12.7% to cause a problem.
Covered Call Trade
To purchase the stock with a lower cost basis, consider a July $55.00 covered call. Buy TGT shares (typically 100 shares, scale as appropriate), while selling the July $55.00 call for a debit of $53.20 per share. The trade has a target assigned return of 3.4%, and a target annualized return of 17.9% (for comparison purposes only).
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