Bull Notes Bump Retail Stock Ahead of Earnings

GIS calls are all the rage ahead of earnings later this week

Digital Content Manager
Jun 29, 2020 at 2:47 PM
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The shares of General Mills, Inc. (NYSE: GIS) are up 2.3% to trade at $60.59 at last check, after the retailer earned a price target hike from J.P. Morgan to $60 from $59 this morning. And over the weekend, Jefferies bumped its own price-target up to $62 from $61. The positive attention comes a few days ahead of the company's fiscal fourth-quarter report, which is due out before the open on Wednesday, July 1. Below, we will take a look at how the equity has performed on the charts as of late, and explore some of the options activity surrounding GIS ahead of the event. 

The equity has experienced its fair share of ups and downs over the last few months. Only a few months after the stock dropped to a year-low near the $46 level, it nabbed a three-year high near of $64.31 in late April.  Since then, the shares have consolidated above the $59 level, with their 60-day moving average capturing the latest pullback. Longer term, GIS sports a 15.8% year-over-year lead.


Analysts remain skeptical of GIS. Of the 12 in coverage, eight carried a "hold" or worse recommendation, while the remaining four carried a "strong buy." Meanwhile, the 12-month consensus target price of $61.88 is only a 1.7% premium to current levels, indicating more price-target hikes could be on the horizon.

In the options pits, there is a distinct preference for calls. GIS sports a 10-day call/put volume ratio of 4.72 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the elevated 77th percentile of its annual range. The high percentile suggests a healthier-than-usual appetite for long calls of late.

Today is more of the same. Calls are trading at nearly 2 times the average intraday amount, with July calls the three most popular by far. More specifically, the 65-, 60- and 62.50-strike calls are leading the charge, while new positions are being opened at the August 75 call.

A look at the equity's history of post-earnings reactions during the past two years shows a generally dismal response. During its last eight reports, five of these next-day sessions were lower, including a 7.6% drop in September 2018 and a 3.2% slip back in March. The security averaged a post-earnings swing of 3.3% the last eight quarters, regardless of direction. This time around, the options market is pricing in a much higher move of 6.2%. 


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