Analysts Expect the Retail Rally to Continue

NKE, GPS, and AEO stocks are trading higher thanks to bullish analyst attention

Dec 18, 2017 at 9:57 AM
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The fall of the retail sector in recent years has been well covered on Wall Street, but many of these stocks have found new life heading into the holiday season. Take for example the SPDR S&P Retail ETF (XRT), which has gained 14.5% since its Nov. 8 bottom. Three names that have also rallied during this time are Nike Inc (NYSE:NKE), Gap Inc (NYSE:GPS), and American Eagle Outfitters (NYSE:AEO). And analysts are counting on even more upside from shares of NKE, GPS, and AEO.

Nike Stock Flirts with Fresh Highs

Nike stock has been no stranger to bullish analyst attention, as the company prepares to report earnings after the close on Thursday. Telsey Advisory is the latest brokerage firm to weigh in, this morning boosting its price target to $68 from $61 -- representing territory not seen in roughly two years.

NKE shares have added 0.3% today to trade at $64.96 -- an earlier touched a 52-week high of $65.08 -- meaning they've now added close to 29% since their Oct. 12 low of $50.35. Despite this jump, options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have seemingly been bearish. The security has a 10-day put/call volume ratio of 1.20 across the exchanges, ranking in the 82nd percentile -- meaning put buying has been unusually popular.

GPS Shares Stay Hot

Shares of Gap are up 2% to trade at $34.27, thanks to a $4 price-target increase at Jefferies to $45. This is just more of the same for the equity, which has jumped over 49% in the past six months and hit a two-year high of $34.41 last week.

But options traders have continued to flock to put options. At the ISE, CBOE, and PHLX, GPS has an elevated 10-day put/call volume ratio of 6.79, which sits just 1 percentage point from a 12-month peak. Plus, its Schaeffer's put/call open interest ratio (SOIR) of 4.13 shows put open interest quadruples call open interest among near-term contracts. An unwinding of this pessimism could spark even more upside for the retail stock.

Jefferies Sees Higher Highs for AEO Stock

Jefferies also weighed in on American Eagle stock, lifting its price target to $22 from $20. The shares have rallied 3.1% in response to trade at $17.97, tapping a fresh annual high in the process. The security's strong second half of the year has it set to end 2017 in positive territory.

Of course, there are still plenty of skeptics out there. AEO has a SOIR of 1.79, ranking only 5 percentage points from a 12-month put-skewed extreme. Plus, almost 12% of its float is dedicated to short interest, and would take four days to cover, going by average daily trading volumes.

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