Puts Pop as Kroger Enters Earnings Confessional

BMO is skeptical of Kroger's same-store sales estimates

Managing Editor

Jun 18, 2019 at 9:58 AM

Grocery giant Kroger Co (NYSE:KR) is set for its first-quarter earnings report before the open on Thursday, June 20. We'll take a look at the stock's earnings history below, as well as how analysts and options traders have been lining up.

At last check, Kroger stock was up 0.1% to trade at $24.39, shaking off a price-target cut to $24 from $28 at BMO. The analyst in coverage is concerned about Kroger's first-quarter same-store sales estimates, and called its digital advertising outlook "overly optimistic." On the charts, Kroger stock fell to a two-and-a-half year low of $22.44 on May 31. While a bounce from this bottom has ensued, it seems to have fallen short at the shares' 80-day moving average.

Digging into Kroger's earnings history, the stock has only closed lower the day after earnings in five of the last eight quarters -- including a 10% drop back in March and a 9.9% dip in September. Over the past two years, the shares have swung an average of 9.7% the day after earnings, regardless of direction. This time around, the options market is pricing in a larger-than-usual 11.8% swing for Thursday's trading.

Analyst sentiment is pretty evenly skewed, with seven "buy" or better ratings, and nine "hold" or worse ratings. But the consensus 12-month price target leans more toward the bullish side, sitting up at $27.91, a 14.6% premium to last night's closing perch at $24.36, and territory not seen since that earnings-induced March bear gap

In the options pits, puts have been popular. This is per KR's 10-day put/call volume ratio of 1.22 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the lofty 75th annual percentile. In other words, puts have been purchased over calls at a faster-than-usual clip.

Echoing this, Kroger's Schaeffer's put/call open interest ratio (SOIR) of 1.99 sits in the 88th percentile of its annual range. This suggests that short-term options players have rarely been more put-heavy in the past 12 months.

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