URBN Breaks Free of Sector Slump Before Earnings

The stock is brushing off two price-target cuts, too

Lillian Currens
May 18, 2020 at 1:54 PM
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Today's broad-market burst hasn't been lost on clothing retailer Urban Outfitters, Inc. (NASDAQ:URBN). The stock broke north of its 60-day moving average today for the first time since February, and is now up 11.7% to trade at $18.59 in a solid attempt to break free of the sideways trading many in the retail sector have been suffering from of late. This positive price action comes just one day ahead of its first-quarter earnings report, which is due out after the close tomorrow. 

URBN May 18

Today's pre-earnings pop isn't enough to convince analysts, though. J.P. Morgan Securities and Wedbush both slashed their price targets, to $17 and $18 respectively, in anticipation of the event. This puts the 12-month consensus price target at $17.94, which is a 2.7% discount to current levels. Meanwhile, just six analysts consider URBN a "buy" or better, compared to 15 that call it a "hold."

The options pits are also stationed in a firmly bearish camp. In the last 10 days, 3.74 puts were picked up for every call at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits higher than 79% of all other readings from the past year, implying a healthier-than-usual appetite for long puts of late. 

Today's options trading paints a similar picture, albeit with limited absolute volume. So far, 830 puts have crossed the tape, compared to 597 calls -- three times the intraday average. The most popular two contracts are the June 18.50 call and the weekly 5/22 17.50-strike put, with positions being opened at both. 

A look back at its past eight reports shows a generally dismal post-earnings response for URBN, which has only ended 25% of these next-day sessions higher. The security has averaged a post-earnings swing of 6%, regardless of direction. This time around, the options market is pricing in a much bigger move of 11.1%. 


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