All three major indices continued to extend yesterday's loss before Alcoa Inc. (AA) kicks off the earnings season. Dow Jones led the loss with 0.41% decline. S&P 500 followed with 0.32% drop, and Nasdaq shed 0.23%. DIA, SPY and QQQ all still closed above their 50-day and 200-day MAs. The healthcare industry led the gain with 0.33% increase, while the capital goods industry dropped the most with a 0.96% decrease. After market close, AA reported Q4 earnings, meeting analysts' expectation with EPS of $0.06, and the company said it expected slightly higher demand for aluminum this year.
The market sentiment is driven by greed now with the Fear & Greed Index at 79, decreased from the previous close of 82. As reported by CBOE, the total put/call ratio for today was 0.95, and the index put/call ratio was 0.88. The equity put/call ratio was 0.78, and the CBOE volatility index (VIX) put/call ratio was 0.38. In the following, the top stock had been identified through our daily options scanning process, with the scanning criteria where the daily call volume ratio was above 3.00 (3x of the average call volume) with a call volume above 10,000.
Average Call Volume
Daily Volume Ratio
Celgene Corporation (CELG)
Source: Schaeffer's Research
CELG is a global biopharmaceutical company engaged in the discovery, development and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases. Celgene markets Thalomid to treat multiple myeloma and Revlimid, a less toxic thalidomide derivative, to treat myelodysplastic syndromes and multiple myeloma. Its MDS drug Vidaza, T-cell lymphoma drug Istodax, and breast cancer drug Abraxane were bought through acquisitions.
On Monday, CELG said it expects to report adjusted net income of $5.50 to $5.60 per share and $6 billion in revenue in 2013, including $4.1 billion to $4.4 billion in sales of Revlimid, the cancer drug. It is less than analysts' expectation of $5.58 per share and $6.05 billion in revenue, as reported by FactSet. However, the company backed its 2015 guidance and predicted further growth into 2017, and said sales of its drug Abraxane will reach more than $1 billion a year.
"Celgene maintained its view for 2015. The company continues to expect adjusted earnings for 2015 in the range of $8.00-$9.00 per share. Net product sales for 2015 are still forecasted in the range of $8.0-9.0 billion. Celgene also provided a rosy outlook for 2017. The company projects net product sales of $12.0 billion for 2017. Moreover, adjusted earnings per share for 2017 are forecasted in the range of $13.00-$14.00."
Investors cheered, and the share price of CELG increased 4.42% on Monday.
On January 8, 2013, CELG had been reiterated by TheStreet Ratings as a buy with a rating score of A. As reported:
"The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
On the same day, RBC Capital also upgraded CELG to "Outperform" from "Sector Perform" with a price target of $100, increased from $90. Piper Jaffray also upgraded CELG from "Neutral" to "Overweight" with a price target of $111 (from $86.00). Goldman Sachs also initiated coverage on CELG with a neutral rating and a price target of $77.00 on December 13, 2012.
Key Stats And Valuation
CELG has an enterprise value of $35.52B with a market cap of $38.67B. CELG has a total cash of $3.83B with an operating cash flow of $2.00B and a levered free cash flow of $1.66B, ttm. By using the data obtained from Morningstar, CELG's key stats will be compared to its peers in the biotechnology industry, including Johnson & Johnson (JNJ), Pfizer Inc. (PFE) and Amgen Inc. (AMGN). CELG has a higher revenue growth (3 year average) of 29.0, as compared to the industry average of 12.2. CELG has higher operating margin of 34.3%, ttm, and net margin of 30.0%, ttm, comparing to the industry averages of 29.6% and 13.8%, ttm, respectively. CELG generates higher ROE of 28.3, comparing to the average of 14, and has a lower debt-to-equity of 0.5, as compared to the average of 2.6.
CELG has P/E of 23.8, which is lower than the industry average of 45.2, but higher than CELG's 5 year average of 18.9. CELG has P/B of 6.3 and P/S of 7.1, which is in-line with and higher than the industry averages of 6.3 and 6.3, respectively. CELG has a forward P/E of 13.0, which is lower than the S&P 500's average of 14.2. CELG has a PEG ratio of 0.6.
CELG closed at $91.41 with 6.63% increase. The volume of 11.44M was 3.73x of 30 day average volume of 3.07M. CELG had a new 52 week high at $91.52 on Tuesday. CELG has a beta of 0.49. The MACD (12, 26, 9) had been showing a bullish trend since January 4, 2013, and the MACD difference continued to diverge. The momentum indicator, RSI (14), is showing a strong bullish momentum and in the over-bought territory at 81.59. CELG is currently trading above its 200-day MA of $73.31 and 50-day MA of $77.91. CELG also broke its resistance at $85.05, the R2 pivot point, as seen from the chart below.
Unusual Call Activities
Unusual option activities can be an indicator or precursor of a major movement for the underlying stock. The most active call was the February 15, 2013 call at the strike price of $90.00, with a volume of 3,821 and an open interest of 574. The implied volatility is 25.9, and the chance of breakeven is 36.34. It is also noted that the most active put was February 15, 2013 at the strike price of $85.00 with a volume of 5,247 and an open interest of 257. The implied volatility is 27.3, and the chance of breakeven is 18.60. The historical volatility for CELG is 24.02 for 1 month, 25.14 for 3 months, and 26.30 for 1 year.
For long-term investors, the credit put spread of April 20, 2013, $77.5/$80, could gain some upside potential while allowing investors to acquire CELG stock at $79.42, which is 13.12% lower than the current price of $91.41. However, there is a high chance of near-term consolidation after such huge run-up.
Note: All numbers/prices are quoted from the closing on January 8, 2013, with the data provided from Barron's, Morningstar, Schaeffer's Investment Research, Inc., Google Finance, and Yahoo! Finance. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.