Chico's FAS, Inc., Kohl's Corporation Take Off on Citi's Trump Thesis

Chico's FAS, Inc. (CHS) and Kohl's Corporation (KSS) are smoking hot, with the retail sector potentially set to benefit from Donald Trump tax reforms

Nov 14, 2016 at 12:06 PM
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Retail stocks are rallying on upbeat attention from Citigroup, which predicts tax reforms from President-elect Donald Trump will strengthen the sector. Among the names benefiting are Chico's FAS, Inc. (NYSE:CHS) -- up 8.4% at $14.85, and fresh off an annual high of $14.90 -- and Kohl's Corporation (NYSE:KSS), which has added 6.8% at $56.87, after hitting a 12-month peak of $57.27.

Looking more closely at CHS, Citigroup said the retailer's operations are improving and its consumer base is becoming "more confident," due to limited overseas exposure. As such, the stock saw its rating boosted to "buy" from "neutral," and its price target upped to $16 from $13. Similarly, Wolfe Research raised its opinion to "outperform" from "peer perform," in addition to weighing in bullishly on the retail sector in general.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have been buying to open CHS puts over calls at a rapid-fire rate recently. Specifically, the stock's 10-day put/call volume ratio stands at a top-heavy 17.20 -- in the high 91st annual percentile -- albeit on low absolute volume. Whether these are speculative bears, or simply shareholders hedging against downside risk, is another question altogether.

What's more clear are the negative expectations among short sellers, which have been building. During the two most recent reporting periods, short interest on Chico's FAS, Inc. jumped 21.6%, and now accounts for 7.9% of its total float. At the stock's average trading volume, it would take 6.5 sessions for short sellers to cover -- suggesting a short-squeeze situation could be around the corner.

Speaking of high short interest, Citigroup cited this as one reason KSS is so attractive. Specifically, 13.6% of the stock's available float is sold short, which would take almost nine sessions to cover, at its average trading levels. In addition, the brokerage firm mentioned the retailer's attractive valuation.

Not every analyst is sold on KSS, though. While eight brokerage firms rate the shares a "strong buy," six consider the stock a "hold," with another three handing out a "strong sell" evaluation. However, with Kohl's Corporation flirting with highs, it's possible a round of upgrades and/or short-covering activity could be forthcoming, bolstering an already impressive technical run. Just last week, in fact, the shares received no fewer than seven price-target hikes in the wake of the retailer's impressive turn in the earnings confessional.

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