Bed Bath & Beyond Stock Pops on Pre-Earnings Upgrade

Call buying has been popular on BBBY in recent weeks

by Karee Venema

Published on Sep 30, 2019 at 9:58 AM

Wedbush upgraded Bed Bath & Beyond Inc. (NASDAQ:BBBY) to "outperform" from "neutral," and raised its price target by $2 to $16 -- a nearly 62% premium to last Friday's close at $9.89. The brokerage firm said it expects the retailer to announce a new CEO when it unveils its fiscal second-quarter financial report after the close this Wednesday, Oct. 2, and believes earnings will stabilize over the next two years.

In reaction, BBBY stock is up 6.1% to trade at $10.49, breaking out above its 80-day moving average, which contained a mid-September rally attempt. The shares are now pacing toward their fourth straight win, and have gained almost 44% since their roughly 22-year low of $7.31 from Aug. 15.

Options traders have been positioning for more upside. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), BBBY's 10-day call/put volume ratio of 1.96 ranks in the 70th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

Given how heavily shorted BBBY is, it's possible some of this call buying came at the hands of shorts hedging against any additional upside risk. Currently, 63.72 million Bed Bath & Beyond shares are sold short, representing a significant 52.3% of the stock's available float.

Looking at BBBY's earnings history, though, the stock has tended to struggle in the immediate aftermath of the retailer's results. Specifically, the equity has closed lower the day after earnings seven times over the past two years, including the past two quarters in a row.

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