Red-Hot BBY Stumbles Ahead of Earnings Report

Still, BBY has a history of negative post-earnings reactions

Deputy Editor
Aug 20, 2020 at 3:07 PM
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The shares of Best Buy Co Inc (NYSE:BBY) are down 0.5% at $111.42 this afternoon, one session after the equity hit a new all-time high of $113.67. The stumble comes a few days ahead of the company's second-quarter earnings report, due out before the open on Tuesday, August 25. Below, we will take a look at how the stock has performed on the charts of late, and explore some of the options activity surrounding BBY ahead of the event.  

On the charts, Best Buy stock has tested new highs during most trading sessions since a mid-July bull gap sent the stock up to $99.42. That rise came just a few days after the company began to enforce face coverings in its stores -- a time when the $88 level was acting as heavy resistance. As a result, BBY now boasts a 64.2% year-over-year lead, with solid support in place from its ascending 10-day moving average.

BBY Chart August 20

Unsurprisingly, analysts are extremely optimistic toward the equity. In fact, on August 17, no fewer than three analysts chimed in with bull notes, including an upgrade to "outperform" from Wedbush. The firm also hiked its price target to $130 from $95. Meanwhile, heading into today, 10 of the brokerages covering BBY sport a "buy," while seven rate the equity a tepid "hold." Plus, the stock's 12-month consensus target price of $103.10 is a 7.5% discount to current levels, suggesting even more bull notes could be in order, should the company's corporate report satisfy analysts. 

There's even more optimism in the options pits, where calls are handily outpacing puts. This is per Best Buy stock's 10-day call/put volume ratio of 2.22 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the slightly elevated 78th percentile of its annual range. This suggests a healthier-than-usual appetite for calls at the moment.

A look at the BBY's history of post-earnings reactions over the past two years shows a series of disappointing responses. In its last eight reports, five of these next-day sessions were lower, including slides after the last two reports -- one of 4.7% in February and a 4.4% drop in May. The security averaged a post-earnings swing of 6.6% the last eight quarters, regardless of direction. This time around, the options market is pricing in a slightly bigger move of 9.9%. 

 

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