Telsey: Next Round of Tariffs Bad for Big Lots and Target

Near-term traders are unusually put-skewed on Target

by Josh Selway

Published on Aug 12, 2019 at 12:17 PM

With the next round of tariffs on imports from China expected to go into effect on Sept. 1, analysts are trying to gauge the impact they'll have on U.S. businesses. Today, Telsey Advisory Group released a note discussing the tariffs, and included a few retailers that could be hurt. Two names in particular that stood out were Big Lots, Inc. (NYSE:BIG) and Target Corporation (NYSE:TGT).

For BIG, Telsey is worried that the tariffs could eat into the company's profitability, and lowered its price target to $28 from $32. This just adds to the pain for Big Lots, which earlier hit its lowest point in more than a decade at $21.73, last seen down 2% at $21.89. The shares have given back more than half their value in the past year.

This price weakness is playing into the hands of recent options traders, as put buying has picked up in recent weeks. Data from the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 1.77 long puts crossing for every call in the past 10 days, a ratio that ranks in the bearish 84th annual percentile. However, peak open interest sits at the August 27.50 call, which expires on Friday.

Skepticism is high elsewhere, too, with short interest accounting for almost 15% of the float -- though the number of shorted shares fell 12% in the last two reporting periods. Most analysts have downbeat views, as well, with just two of seven in coverage recommending to buy the shares.

The other part of Telsey's note mentioned that the tariffs could result in increased prices for consumers during the holiday season, something that could be more troublesome for Target. TGT shares have shed 1.2% today at $81.41, but could find support in the $77-$80 range, which was the site of multiple gaps in the past year, and is also home to the 200-day moving average and year-over-year breakeven level. 

Near-term options traders are certainly positioned for a move to the downside, according to the Schaeffer's put/call open interest ratio (SOIR) of 1.01. This reading ranks in the top annual percentile, showing a rare put-skew among short-term options traders. Bullish or bearish, traders should note that the equity's Schaeffer's Volatility Scorecard (SVS) of 94 shows a strong tendency to make bigger-than-expected moves during the past year.

Short interest has also been on the rise, increasing by more than 20% in the last two reporting periods. The 22.8 million Target shares sold short now represent 4.5 days' worth of buying power, based on average trading volumes.


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