L Brands Stock Hit with Pre-Earnings Bear Notes

Call buying has been popular on underperforming LB

Managing Editor
Nov 18, 2019 at 9:33 AM
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Retail giant L Brands Inc (NYSE:LB) was slammed with a set of price-target cuts this morning, adding to its already grim run on the charts. RBC dropped its target price to $21 from $22, while Wedbush slashed its LB price target to $16 from $20. This double dose of bear notes comes just ahead of the company's quarterly report, which is scheduled for after the close this Wednesday, Nov. 20. At last check, LB is trading down 0.5% at $17.98.

LB has struggled on the charts of late. Now down nearly 30% year-to-date, the equity is seeing overhead pressure at its descending 50-day moving average. In fact, as recently as Sept. 3, the Victoria's Secret parent touched an almost decade low of $15.82.

In the options pits, it looks like traders have been optimistic despite the stock's underperformance on the charts. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.54 calls for every put during the past 10 sessions. The 10-day call/put volume ratio registers in the 80th percentile of its annual range, pointing to a healthier-than-usual appetite for long calls over puts.

Meanwhile, short interest has rolled back 11.6% during the past two reporting periods. These bearish bets still account for a healthy 8.3% of the stock's available float, so it's possible some of the recent call buying could be a result of shorts hedging against any earnings-related upside risk.

Looking at the stock's earnings history, LB has closed lower the day after the retailer reported in six of the past eight reports, including a 17.7% plunge this time last year. The equity has averaged a post-earnings swing of 8.5% in the last two years, regardless of direction, but this time around, the options market is pricing in a larger-than-usual 13.2% move for L Brands sotck.

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