Analyst Sees This Retail Stock's Price Tag As "Undervalued"

Michael Kors will report earnings next Wednesday, Nov. 7

Managing Editor
Nov 2, 2018 at 12:10 PM
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The shares of Michael Kors Holdings Ltd (NYSE:KORS) are up 3.5%, at last check, to trade at $58.51. This upside comes after UBS upgraded the retailer to "buy" from "neutral," and boosted its price target to $80 from $76, a nearly 40% premium yesterday's close. In addition, Piper Jaffray also raised its rating on KORS -- to "overweight" from "neutral," calling the retail stock "underappreciated and undervalued" ahead of earnings.

Michael Kors is slated to report fiscal second-quarter earnings before the open next Wednesday, Nov. 7. Digging into its earnings history, KORS closed higher the day after reporting in four of the last five quarters, including a 14.7% jump last November. Looking broader, the shares have averaged a 9.8% move the day after earnings over the last two years, regardless of direction. This time around, KORS options are pricing in a much larger-than-usual 14.1% swing for Thursday's trading.

On the charts, KORS has shed 23% since its late-August high near $76. However, after bouncing off the $54 level toward the end of October, the shares are on track to snap a six-week losing streak.

Daily Stock Chart KORS

Most analysts are lukewarm, at best, toward KORS. Of the 20 brokerages covering the security, 12 rate it a tepid "hold."

Options traders have been extremely bearish toward KORS in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which shows the retailer with a 10-day put/call volume ratio of 0.89, ranking in the elevated 79th annual percentile. This indicates that while calls still outnumber puts on an absolute basis, the rate of puts purchased over calls has been at a faster-than-usual clip in the last 10 days.

Due to earnings next week, those targeting short-term options are currently having to contend with relatively rich premiums. KORS' 30-day at-the-money implied volatility (IV) of 56.4% ranks in the 98th percentile of its 12-month range. 

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