Target Stock Added to BAML's US 1 List Despite Post-Earnings Bear Gap

BofA-Merrill Lynch already held a "buy" rating on Target stock

Managing Editor
May 30, 2018 at 9:30 AM
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Target Corporation (NYSE:TGT) is trading higher this morning after BofA-Merrill Lynch placed the retailer on its U.S. 1 list, citing the company's ability to maintain positive same-store sales momentum and demographic trends. The firm reiterated its "buy" rating and price target of $86. In response, shares of TGT are up 0.6% at $72.11 in early trading. 

This comes less than a week after the stock's post-earnings bear gap, where TGT fell back below the $71 level and 80-day moving average -- a trendline it's set to take back today. And despite the stock's recent underperformance, it still had a year-over-year gain of nearly 31% coming into today. Analyst sentiment has been very pessimistic, however. Of the 17 brokerage firms following Target stock, 13 currently sport tepid "hold" or "strong sell" ratings. 

Looking towards the options pits, traders have also been bearish in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), shows Target stock with a 10-day put/call volume ratio of 1.16, ranking in the 90th percentile of its annual range. This suggests that puts have been purchased over calls at a faster-than-usual clip during the past two weeks.

Regardless of the stock's recent performance, now may be an opportune time to consider TGT's short-term options with earnings in the rear view. The equity's Schaeffer's Volatility Index (SVI) of 22% ranks in the low 12th percentile of its annual range, indicating premium on short-term contracts is relatively cheap at the moment, from a volatility standpoint.


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