Options Bulls Eye Lowe's Stock After Earnings Beat

The equity is up over 63% year-over-year

Digital Content Manager
Aug 19, 2020 at 10:55 AM
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The shares of Lowe`s Companies Inc (NYSE: LOW) are up 0.8% at $159.17 this morning -- earlier hitting a record high of $162.89 -- after the home improvement retailer reported second-quarter profits of $3.75 per share on $27.3 billion, significantly higher than Wall Street's estimates of $2.95 on $24.27 billion. The company cited a quarterly sales increase of 135%, which was driven by a consumer focus on home repairs and maintenance activities. 

On the charts, the equity has completely recovered from its mid-March, five-year lows near the $60 level. Shares have been on a steady climb since April, beating records on a monthly basis with support from the 10-day moving average, which has contained most of the stock's pullbacks. Longer term, LOW sports a 63.2% year-over-year lead.

Digging deeper, analysts were majorly optimistic toward the stock coming into today, with 18 of the 21 in coverage sporting a "buy" or better rating, and only three carrying a tepid "hold." Meanwhile, the stock's 12-month consensus price target of $165.04 is a 2.8% premium to current levels.

That upbeat analyst sentiment is reflected in the options pits, where calls are far more popular. LOW sports a 10-day call/put volume ratio of 3.14 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) that sits in the 95th percentile of its annual range. This suggests a healthier-than-usual appetite for bullish bets of late.

Today's earnings beat has only added optimism to the stock. At last check, 18,000 calls have crossed the tape -- eight times the average intraday amount, and almost twice the number of puts traded. Most popular is the monthly August 165 call, followed by the 160 call in the same series.

Also worth noting is the security's Schaeffer's Volatility Scorecard (SVS), which sits relatively high at 77 out of 100. This means Lowe's stock has tended to exceed option traders' volatility expectations during the past year -- a good thing for option buyers.


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