Burlington Could Join Retail Rally, Says Signal

BURL is getting a halo lift today from gains in the retail sector

by Lillian Currens

Published on Aug 21, 2019 at 2:00 PM

Big gains in the retail sector have helped lift department store stock Burlington Stores Inc (NYSE:BURL). The equity has added 1.6% to trade at $171.63 so far today. This boost comes just ahead of the company's second-quarter earnings, due out before the open next Thursday, Aug. 29. What's more, BURL stock just flashed a historical buy signal ahead of the event.

Specifically, BURL just came within one standard deviation of its 10-month moving average, after a lengthy period atop the trendline. Per data from Schaeffer's Senior Qualitative Analyst Rocky White, there have been seven of these signals in the past 15 years. Sixty-seven percent of these returns were positive three months later, with a 13.9% gain, on average. From its current post, a similar move would put the equity in uncharted territory, right above the $195 region. 

BURL Chart Aug 21

BURL could see a big post-earnings move next week too, if past is prologue. The stock enjoyed a 12.8% gain the day after its November report, and an 11.9% drop the day after unveiling earnings in March. The day after the last four earnings releases, the stock averaged an 8.1% swing, regardless of direction, which comes in a little under the 10.5% next-day move the options market is pricing in this time around. 

Many options traders are leaning toward bearish bets, however. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 1.4 BURL puts have been bought to open for every call in the last 10 weeks. This ratio sits higher than 71% of all other readings from the past year, indicating that traders have been buying puts over calls a quicker clip than usual. Should Burlington report solid earnings next week, an unwinding of pessimism in the options pits could propel the shares even higher.

Although 10 of the 12 brokerage firms in coverage call BURL a "strong buy," the consensus 12-month price target of $180.29 represents just a slim 5.2% premium to current levels. A solid earnings showing could fuel a round of price-target hikes for the retail concern.


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