GPS has a history of positive post-earnings moves
The shares of Gap Inc (NYSE:GPS) are up 8.5% at $16.83 this afternoon, just ahead of the company's second-quarter earnings report, due out after the close on Thursday, August 27. Driving today's surge is a fresh upgrade out of Citigroup to "buy" from "neutral" and price-target hike to $24 from $12. Below, we will take a look at how the stock has performed on the charts of late, and explore some of the options activity surrounding GPS ahead of the event.
On the charts, Gap stock is pushing back toward its February highs, though the stock is still facing a 4.8% deficit year-to-date. Still, GPS boasts an 88.4% lead over the last three months, and just broke above the resistant $16 level with today's rise. Furthermore, the equity is set to notch its second consecutive close above its 320-day moving average -- a trendline the stock has failed to consistently close above in nearly two years.
Circling back to analyst attention, 14 of the 16 brokerages covering GPS sport a "hold" or worse rating, while just two recommend a "buy" or better. Still, the stock's 12-month consensus target price of $12.10 is an eyebrow raising 28.2% discount to current levels, suggesting even more bull notes could be in order, should the company's corporate report satisfy analysts.
There's plenty of optimism in Gap stock's options pits, where calls are handily outpacing puts. In fact, GPS sports a 50-day call/put volume ratio of 3.85 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the highest percentile of its annual range, which suggests a healthier-than-usual appetite for calls at the moment.
A look at the the equity's history of post-earnings reactions over the past two years shows a series of stellar responses. In its last eight reports, five of these next-day sessions were higher, including a 16.2% rise in March 2019 and a 7.3% pop in March 2020. The security averaged a post-earnings swing of 7.1% the last eight quarters, regardless of direction. This time around, the options market is pricing in a much bigger move of 17.5%.