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Brand Face-Off: Ralph Lauren Corp vs. VF Corp

Evaluating RL and VFC from technical and sentiment viewpoints

by 3/24/2014 2:37:01 PM
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Apparel designers Ralph Lauren Corp (NYSE:RL) and VF Corp (NYSE:VFC) have charted two very different courses in the last year. RL is about 5% lower on a year-over-year basis to trade at $159.45, and in the past three months, has underperformed the broader S&P 500 Index (SPX) by more than 10 percentage points. Currently, the stock is also battling overhead resistance at its 100-week moving average -- a trendline that previously served as support last October. By contrast, VFC has gained nearly 50% in the last year to wink at $61.73, helped higher by a pair of recent bounces off of its ascending 100-day moving average.

Weekly Chart of RL since August 2013 With 100-Week Moving Average

Daily Chart of VFC since August 2013 With 100-Day Moving Average

Despite their divergent paths, both Ralph Lauren and VF Corp have received plenty of bullish attention in the options pits. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), RL has racked up a 50-day call/put volume ratio of 3.22, as more than three calls have been bought to open for every put in recent months. This ratio is just 1 percentage point shy of an annual acme, signaling a much stronger-than-usual appetite for long calls over puts of late. If RL continues to struggle on the charts, however, an unwinding of these bullish bets could translate into contrarian headwinds.

Meanwhile, VFC's 50-day ISE/CBOE/PHLX call/put volume ratio checks in at 2.22 -- an annual high. Nevertheless, this optimism is warranted, given the shares' impressive long-term ascent.

Short-term traders are generally call-biased on the stocks, as well. Schaeffer's put/call open interest ratios (SOIR) for RL and VFC are 0.44 and 0.69, respectively, with call open interest outweighing put open interest (among options expiring in three months or less) in both cases. Relative to the past year's worth of data, RL's SOIR registers in the 6th percentile and VFC's in the 11th. Again, should Ralph Lauren's chronic struggles prompt short-term traders to reverse course, it could pressure the shares lower; this scenario is far less likely for overachieving VF Corp.

Finally, on Wall Street, two-thirds of RL's covering analysts rate the stock a "buy" or better, leaving five "holds" and not a single "sell" recommendation. Also, the consensus 12-month price target of $181.59 stands a solid 14% higher than the shares' current perch. In other words, a round of bearish brokerage notes could be in the cards for Ralph Lauren.

Meanwhile, 13 out of 18 analysts following VFC give it a "buy" or better endorsement. However, the equity's price target of $64.71 is well within striking distance. Given the stock's outstanding technicals, it wouldn't be shocking to see additional brokerage firms follow in the steps of Janney Capital, which raised its price target on VFC to $68 from $65 earlier today.

All things considered, it's clear that VF Corp (NYSE:VFC) is the winner of this Brand Face-Off. Not only does the stock stand to gain from continued positive attention from analysts, but rival Ralph Lauren Corp (NYSE:RL) appears poised to suffer from an unwinding of optimism in the options pits and on the Street.

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