2 Retail Stocks Soaring After Earnings

Analysts expect record highs for Applied Materials stock after earnings

by Patrick Martin

Published on Aug 18, 2017 at 10:14 AM

Analysts are weighing in on retail stocks Gap Inc (NYSE:GPS) and Ross Stores, Inc. (NASDAQ:ROST), as well as semiconductor equipment specialist Applied Materials, Inc. (NASDAQ:AMAT). Here's a quick roundup of today's bullish brokerage notes on shares of GPS, ROST, and AMAT.

Gap Bucks Retail Earnings Trend

Gap Inc stock is up 4.2% to trade at $23.64, after the retailer posted better-than-expected same-store sales for the second quarter, and raised its full-year forecast -- breaking the recent trend of dismal retailer earnings. The upbeat report garnered two price target hikes for GPS stock -- to $28 from $27 at J.P. Morgan Securities, and to $24 from $23 at Deutsche Bank. However, Gap stock is still staring up at its 200-day moving average, a trendline that has contained previous breakout attempts this summer. 

GPS option traders have been preferring bearish bets lately. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows GPS with a 10-day put/call volume ratio of 2.61, which ranks in the 90th percentile of its annual range. 

Ross Stores Could Have Shorts Nervous

Ross Stores stock is up 10.7% to trade at $59.06, soaring after quarterly earnings beat analyst projections. As a result, BofA-Merrill Lynch reiterated its "buy" rating on Ross Stores stock, while Credit Suisse raised its price target to $66 from $64. (Three other brokerage firms, meanwhile, cut their price targets on ROST.) Prior to today, it had been a rough year for ROST stock, with the equity falling to an annual low of $52.85 on Tuesday. However, the rally today could help Ross Stores shares to a close above their 80-day moving average for the first time since March. 

A few short sellers could be worried today. Short interest on ROST increased by 22% during the last two reporting periods, and now accounts for 15 million shares: the highest in three years. It would take four days to repurchase all of those pessimistic positions, at the stock's average pace of trading. 

Analysts Expect Record Highs for AMAT Stock

Applied Materials stock is up 3.6% to trade at $44.66, after the company reported strong fiscal third-quarter earnings and upbeat current-quarter guidance. The report was promptly followed by no fewer than 10 price-target hikes for AMAT stock, including to $62 from $54 at Credit Suisse -- in uncharted territory for the shares, and representing a premium of almost 40% to Applied Materials stock's current price. It's been an excellent year for AMAT stock, which has tacked on 62% year-over-year, and touched a nearly 17-year high of $47.86 on June 9, before pulling back to support at its 100-day moving average.

In the options pits, however, there is a bigger-than-usual preference toward near-term puts. AMAT stock sports a Schaeffer's put/call open interest ratio (SOIR) of 0.97, which ranks in the 86th percentile of its annual range. Should AMAT stock continue to climb, it could lead to an unwinding of bearish positions, providing tailwinds for the chip stock.

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