Options traders have been loading up on puts ahead of the event
Ralph Lauren Corp (NYSE:RL) will step into the earnings confessional next week, set to report fiscal fourth-quarter earnings before the open on May 14. Ahead of the event, the stock received a big upgrade from RBC, to "outperform" from "sector perform," as well as a price-target hike to $145 from $135. The analyst in coverage said the retailer's top-line recovery is exceeding expectations, and predicts "another leg up" for RL shares this year. Further, ahead of potentially increased Chinese tariffs, RBC waxed optimistic on Ralph Lauren's global revenue base and diverse supply chain.
At last check, Ralph Lauren stock has been unable to take advantage of the upgrade, trading down 0.1% at $124.53. RL is heading toward its worst weekly loss since Nov. 9, set to snap a weekly winning streak of four. The stock is now trading right around its 200-day moving average, and could find a floor around its 20% year-to-date gain.
Analyst sentiment is pretty evenly skewed. Of the 12 in coverage, six rate it a "buy" or better, and the other six rate it a tepid "hold" or "sell." Should RL extend its run higher after earnings, additional upgrades could be on the horizon.
Options activity has also been bearish on RL lately. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the stock with a 10-day put/call volume ratio of 2.12 that ranks in the 88th percentile of its annual range. This shows that not only have long puts more than doubled long calls, but the high ratio underscores an unusual demand for long puts over calls in recent weeks. An unwinding of these bearish bets could fuel a rally for Ralph Lauren shares.
Echoing this, RL sports a Schaeffer's put/call open interest ratio (SOIR) of 1.58, indicating that put open interest easily surpasses call open interest among options expiring within the next three months. This SOIR is in the 94th annual percentile, suggesting short-term options traders have rarely been more put-biased in the past year.
Ralph Lauren stock has a historically mixed performance in the session after earnings, closing higher after four of the last eight quarterly reports, including a 8.4% pop back in February. This time around, the options market is pricing in a 10.7% swing for the shares after earnings, regardless of direction -- much loftier than the 6.3% next-day move RL has averaged over the last two years.