Earnings Preview: Urban Outfitters, Inc. (URBN)

Urban Outfitters, Inc. (URBN) has gapped higher after its last three quarterly reports, but options trader seem to be bracing for downside

Nov 22, 2016 at 3:16 PM
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As shoppers prepare to hit the stores for Black Friday, retailers are among the stocks standing to benefit most this week. Urban Outfitters, Inc. (NASDAQ:URBN) could have another reason to celebrate, too, since the company is due to report quarterly earnings after the close tonight. If past is precedent, this could mean big gains ahead for URBN shares, but the stock has been plagued by pessimism lately, even as it climbs the charts.

Jumping right in, URBN has made a significant move higher in the session following its earnings report in three consecutive quarters, tacking on 15.4%, 13.9%, 16.1%, respectively. While the stock has seen an upside move in its post-earnings session in just four of the last eight quarters, the average move higher clocks in at 14.2%, compared to an average loss of 6.9%. All-in-all, the average one-day post-earnings swing comes in at 10.6% -- right in line with what the options market is pricing in for Wednesday's session.

URBN options are flying across the tape at seven times the average daily pace today, with puts taking the lead on an absolute basis. The weekly 11/25 series and front-month December series are popular, together accounting for nine of the 10 most active strikes. So far, it looks like some speculators may be betting on a move to the downside over coming weeks, as buy-to-open action is possible at the December 39.50 put. Buyers of the puts are betting on URBN falling further below the $39.50 level through Friday, Dec. 16, when the options expire.

This pessimistic outlook is nothing new for the stock, however. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have purchased more than two URBN puts for each call over the past two weeks. The resulting put/call volume ratio ranks higher than nearly two-thirds of the past year's readings.

A bearish approach is not limited to URBN's options pits, either. Short interest on the equity rose by roughly 31% during the two most recent reporting periods, and now rests at a four-year high of 13.2 million shares shorted. Moreover, these pessimistic bets represent nearly 15% of URBN's available float, and would take 7.3 days to cover, at the stock's typical pace of trading.

The analyst community has also been none too kind of late. Out of 22 brokerage firms following the security, 13 call URBN a tepid "hold." What's more, the 12-month consensus price target sits below the stock's current trading levels, at $37.46.

It's been a strong year so far for URBN, which has added more than 72% in 2016. In fact, the shares hit an annual high of $40.80 just last week. Since then, the stock's pullback has been kept in check by the $37 level, which has served as resistance numerous times since mid-2014. Urban Outfitters, Inc. (NASDAQ:URBN) was last spotted up 5.5% for the day, at $39.20.

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