Struggling KMB Stock Hoping To Get A Boost From Earnings

KMB options traders have been all over puts lately

Managing Editor
Oct 20, 2017 at 12:13 PM
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Earnings season is in full force, with a number of stocks already soaring to fresh highs. Looking ahead, consumer products manufacturer Kimberly-Clark Corp (NYSE:KMB) is slated to unveil its quarterly results before Monday's open. Here's a closer look at how KMB stock has been performing ahead of earnings, and how options traders are positioning themselves.

Kimberly-Clark stock is down 2% today to trade at $113.19, and earlier hit a two-year low of $110.33, after J.P. Morgan Securities downgraded the equity to "underweight" from "neutral," while also issuing a price-target cut to $100 from $135. Analysts cited increasing pressure from competitor Procter & Gamble as a reason for the downgrade.

Analyst sentiment is overwhelmingly negative. All 13 of the brokerages covering KMB stock rate it a "hold" or "strong sell." Furthermore, the equity's average 12-month price target of $125.13 represents a 10% premium from its current perch, indicating more price-target cuts could be on the way.

Short sellers have been raising the bearish stakes recently as well. Short interest increased by 21% in the last two reporting periods to 10.27 million shares, the most since July 2012. However, these bearish bets account for a slim 2.92% of the stock's available float, indicating there is plenty of room aboard the bearish bandwagon.

Unsurprisingly, options traders have been flocking toward puts lately. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), KMB sports a 10-day call/put volume ratio of 7.51, which ranks 4 percentage points from a 52-week high.

Digging deeper, the November 110 and 115 puts saw notable increases in open interest during the past two weeks. But while the 110 strike saw some buy-to-open activity, the 115 puts saw a preponderance of sell-to-open action. This means some options traders are hoping for the equity to move back above the $115 mark by the time the contracts expire at the close on Friday, Nov. 17.

Looking back, KMB shares have moved higher the day after earnings over the last three quarters. On average, the equity has swung 1.6% in the subsequent session, regardless of direction, following the last eight reporting periods. Not surprisingly with earnings on the way, Kimberly-Clark options are pricing in an unusually large move, based on its 30-day at-the-money implied volatility of 23.2% -- an annual high.

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