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Ahead of Earnings: Optimism Builds On Lowe's Companies, Inc. (LOW)

Lowe's Companies, Inc. will report second-quarter earnings tomorrow morning

by 8/19/2014 2:33 PM
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Thanks to a strong quarterly showing -- and subsequent round of bullish brokerage notes -- for sector peer The Home Depot, Inc. (NYSE:HD), shares of Lowe's Companies, Inc. (NYSE:LOW) are up 2.8% this afternoon to trade at $51.88. Option players are hoping the equity will extend this momentum in the wake of its own results -- slated for release tomorrow morning -- and are scooping up calls at a rate eight times the intraday average.

The most active LOW strike today is the September 50 call, where 12,196 contracts have changed hands for a volume-weighted average price (VWAP) of $2.29. According to the International Securities Exchange (ISE), a portion of this activity is of the buy-to-open kind, making at-expiration breakeven $52.29 (strike plus VWAP) -- territory yet to be explored by the home improvement retailer. Gains will accumulate north of here, while losses are capped at the premium paid, should LOW settle south of the round-number $50 mark at the close on Friday, Sept. 19 -- when front-month options expire.

Today's accelerated call activity only highlights the withstanding trend witnessed in LOW's options pits in the weeks leading up to tomorrow morning's scheduled event. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the security's 10-day call/put volume ratio of 1.63 ranks in the 64th percentile of its annual range. Simply stated, calls have been bought to open over puts at a faster-than-usual clip in recent weeks.

Echoing this call-skewed bias is LOW's Schaeffer's put/call open interest ratio (SOIR) of 0.82, which ranks lower than 73% of similar readings taken in the past year. In other words, short-term speculators are more call-heavy than usual toward the security.

On the charts, LOW has been moving steadily higher since popping through previous congestion in the $48.50 area earlier this month. In fact, the shares are up more than 8% from their Aug. 7 close at $47.92. The equity could be poised to build on this momentum, too, if its historical post-earnings price action is any guide. Over the past eight quarters, specifically, LOW has averaged a gain of 2.6% in the week subsequent to reporting. For Lowe's Companies, Inc.'s (NYSE:LOW) second quarter, analysts are calling for a per-share profit of $1.02 -- a 14-cent improvement over what the company brought in one year ago.


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