Morgan Stanley Bullish on Target Stock Ahead of Earnings

Morgan Stanley upgraded TGT to "equal-weight"

by Patrick Martin

Published on May 20, 2019 at 9:51 AM
Updated on May 20, 2019 at 10:04 AM

Several retail names step into the earnings confessional this week, including Target Corporation (NYSE:TGT), set to report on Wednesday, May 22, before the open. Ahead of the event, Morgan Stanley upped its rating on Target to "equal-weight" from "underweight," the analyst seeing the company's margin risk as already priced into its valuation. 

At last check, Target stock was up 0.7% to trade at $71.31. The shares have shed 11% this quarter, but last week appear to have found a floor at the round $70 level. Plus, TGT's 14-day Relative Strength Index (RSI) was docked at 25 at Friday's closing bell -- well into oversold territory, indicating today's bounce could have already been in the cards. 

Today's bull note runs counter to the overall analyst setup. Of the 20 brokerages covering the equity, 12 rate it a "hold" or "strong sell." However, the stock's average 12-month price target of $86.60 is a 22.2% premium to Friday's closing perch of $70.89.

The retailer has a mixed earnings history lately, closing higher the day after reporting in four of the last eight quarters -- including a 4.6% climb in March. On average, the shares have moved 5.4% in the session subsequent to earnings, regardless of direction, going back two years, with the options market pricing in a larger-than-usual 8.7% swing this time around.

TGT options traders have been loading up on puts. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio sits at 1.58 and ranks one percentage point from an annual high, meaning puts have been bought to open over calls at a quicker-than-usual clip.

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