Analyst Downgrades: Gap Inc, Ross Stores, Inc., and Brocade Communications Systems, Inc.

Analysts downwardly revised their ratings and price targets on Gap Inc (NYSE:GPS), Ross Stores, Inc. (NASDAQ:ROST), and Brocade Communications Systems, Inc. (NASDAQ:BRCD)

by Karee Venema

Published on May 20, 2016 at 10:03 AM
Updated on May 20, 2016 at 10:14 AM

Analysts are weighing in on retail stocks Gap Inc (NYSE:GPS) and Ross Stores, Inc. (NASDAQ:ROST), as well as networking solutions specialist Brocade Communications Systems, Inc. (NASDAQ:BRCD). Here's a quick roundup of today's bearish brokerage notes on GPS, ROST, and BRCD.

  • Analysts were quick to chime in on GPS, after the retailer said it would close roughly 75 Old Navy and Banana Republic stores -- mostly overseas -- to try and stem declining sales. Additionally, Gap Inc reported a 6% drop in first-quarter sales and a nearly 47% drop in profit, results CEO Art Peck called "unacceptable." Stifel, for example, lowered its rating to "hold" from "buy," while at least 12 other brokerage firms cut their price targets. What's more, Standard and Poor's cut its rating on the company to "junk" status. While shares of GPS are up 1.5% out of the gate to $17.54, this post-earnings upside should be taken with a grain of salt. Specifically, GPS has surrendered almost 55% over the past 52 weeks, and tagged a four-year low earlier this week. As such, the stock's 14-day Relative Strength Index (RSI) closed last night at 15 -- well in oversold territory -- suggesting a near-term bounce may have been in the cards.

  • ROST is also lower post-earnings following a challenging quarter for retailers, down 3.5% at $53.56. However, the equity could potentially find a foothold atop its 200-day moving average -- a historically supportive trendline that has helped contain pullbacks going back to last November -- as well as its year-to-date breakeven mark. Meanwhile, the stock is also reacting to a round of price-target cuts, including one from RBC to $56 from $58. On the sentiment front, short-term speculators are more put-skewed than usual toward Ross Stores, Inc., per the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.39 -- in the 81st annual percentile. Should the equity bounce from double-barreled technical support, an unwinding of these bearish bets could create fresh tailwinds for the shares.

  • BRCD's fiscal second-quarter revenue miss was met with no fewer than six price-target cuts, including one from Baird to $9 from $10, with the brokerage firm saying it remains "cautious on rapid architectural changes taking place in the Storage market." Against this backdrop, the shares of BRCD are down 2.2% at $7.80, widening their year-over-year deficit to 35%. This is likely music to the ears of options traders, who have been initiating long puts relative to long calls at a faster-than-usual clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Brocade Communications Systems, Inc.'s 10-day put/call volume ratio of 0.41 rests in the 79th annual percentile.
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