Earnings Preview: Home Depot Inc, TJX Companies Inc, and Dick's Sporting Goods Inc

Home Depot Inc (NYSE:HD), TJX Companies Inc (NYSE:TJX), and Dick's Sporting Goods Inc (NYSE:DKS) will step up to the earnings mic tomorrow

Josh Selway
Nov 16, 2015 at 3:07 PM
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The retail sector took a drubbing last week, sparked by some discouraging forecasts and exacerbated by lackluster October sales figures. This week, the sector will have a chance to redeem itself, with components Home Depot Inc (NYSE:HD)TJX Companies Inc (NYSE:TJX), and Dick's Sporting Goods Inc (NYSE:DKS) all set to report. Below, we'll take the pre-earnings temperature of HD, TJX, and DKS.

  • HD has enjoyed positive post-earnings sessions in six of the past eight quarters, with an average gain of 2.8%. This time around, the options market is pricing in a more ambitious 3.8% move, going by the stock's near-term at-the-money (ATM) straddle data. For the year, Home Depot Inc is 14.4% higher at $120.12, touching a record peak of $126.12 just a week ago, but option traders have still been taking a bearish approach ahead of tomorrow morning's quarterly event. Specifically, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), HD's 50-day put/call volume ratio of 1.10 sits only 2 percentage points from an annual high. If the shares can continue their pursuit of higher highs, a capitulation among skeptical traders could ignite additional gains.

  • TJX has had positive post-event reactions after the company's last five showings in the earnings booth, and ahead of tomorrow morning's turn, traders are pricing in an 8.5% swing in either direction. Leading up to the reveal, short sellers have been hitting the exits. Specifically, short interest plummeted by 21.5% during the most recent reporting period -- though it still makes up three days' worth of buying power, at average daily volumes. The stock could enjoy tailwinds if more bears hit the bricks following an earnings beat. What's more, although TJX Companies Inc fell along with its sector peers last week, it found support right at its 100-week moving average. This trendline contained the equity's mid-2014 pullback, and hasn't been breached on a weekly closing basis since May 2009 -- suggesting a potential bounce may be in store. The shares were up 0.3% at $64.38 at last check. 

  • DKS has been moving lower since its early April record high of $60.33, dropping almost 33% to land at $40.61, and hitting a three-year low of $39.92 earlier today. In the meantime, short sellers have been piling on; short interest more than doubled during the two most recent reporting periods. However, among option traders, call open interest outweighs put open interest among options expiring within the next three months, according to the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.94. If this optimism starts to unwind in the face of brutal technicals -- and short sellers continue to pile on -- it could spell even more problems for Dick's Sporting Goods Inc moving forward. As of now, the options market is pricing in a 9.5% post-earnings swing, more than doubling the average post-event move of 4.4% over the past eight quarters.

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