Macy's Stock Earnings Surge Could Have Legs

Options traders have been more bearish than usual

Managing Editor
Feb 27, 2018 at 10:05 AM
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Cincinnati-based retail chain Macy's Inc (NYSE:M) is soaring after the company reported stronger-than-expected fourth-quarter earnings early this morning. The results were helped by impressive same-store sales growth and a revamped loyalty program, and in reaction, the stock has gapped 11.9% higher to trade at $30.72 at last check -- territory not seen since last March.

More broadly, M has gained more than 47% in the past six months -- rallying hard off its early November lows -- and is now trading well above support at its 200-day moving average. Analysts have been sitting on the sidelines during this surge, though, with 11 of 12 carrying a "hold" or worse rating, and the average 12-month price target of $26.75 a discount to current levels. A round of bullish brokerage notes could draw more buyers to the table.

In the options pits, puts have been bought to open relative to calls at a faster-than-usual clip over the past two weeks, with Macy's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranking in the 81st annual percentile. A capitulation from some of the weaker bearish hands could create tailwinds for the shares.

Plus, short interest on M has fallen 11.2% in the most recent reporting periods, but nearly 14% of the stock's float remains dedicated to short interest. At the security's average pace of trading, that's more than a week's worth of pent-up buying demand. A continued short squeeze could add fuel to Macy's stock's fire.

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