In this article, two stocks received positive upgrades from analysts will be presented, including Questcor (QCOR) Pharmaceuticals, Inc. and UnitedHealth Group, Inc. (UNH). Positive factors will be presented for both stocks. Options strategies will also be reviewed for investors.
Questcor Pharmaceuticals, Inc.
Questcor Pharmaceuticals, Inc. develops prescription medications primarily for central nervous system disorders, including epilepsy and multiple sclerosis. QCOR increased 3.70% and closed at $31.08 on February 21, 2013. QCOR had been trading in the range of $17.25-$58.91 in the past 52 weeks. QCOR has a low beta of 0.78.
On February 21, 2013, Janney Montgomery Scott initiated coverage on QCOR with a Buy rating and a price target of $40.00. Mizuho Securities also upgraded QCOR from Neutral to Buy with a price target of $41.00 (from $28.00). Analysts have an overall Buy rating for QCOR with an average price of $41.64 (34% upside potential).
QCOR is expected to release Q4, 2012 earnings on February 26, 2013 at 4:30PM. Analysts, on average, are expecting an EPS of $0.99 with revenue of $141.78M for the quarter ending in December, 2012. In the past 4 quarters, there were 4 positive surprises. The EPS estimate had been increased from $0.98 to $0.99 in the past 90 days.
There are a few positive factors for QCOR:
- Higher revenue growth (3 year average) of 31.8 (vs. the industry average of 13.6)
- Higher operating margin of 57.6% and net margin of 39.4% (vs. the averages of 25.9% and 13.7%)
- Stronger ROE of 113.5 (vs. the average of 13.5)
- Zero total debt with a total cash of $111.91M
- Lower P/E of 11.6 (vs. the industry average of 42.9)
- Lower Forward P/E of 6.5 (vs. S&P 500's average of 14.0)
- QCOR generates an operating cash flow of $166.85M with a levered free cash flow of $162.53M
- QCOR offers an annual dividend yield of 2.57%
Technically, the MACD (12, 26, 9) is showing a slightly bullish trend. The momentum indicator, RSI (14), is indicating a strong buying momentum at 72.94, where above 70 is considered as overbought. QCOR is trading above its 50-day MA of $27.16 but below its 200-day MA of $34.04, as seen from the chart below.
For bullish investors, a credit put spread can be reviewed as below:
- Short 1x April 20, 2013 put at the strike price of $25.00 for the credit of $1.30
- Buy 1x April 20, 2013 put at the strike price of $23.00 for the cost of $0.95
Profit/Risk: Maximum profit of $0.35, and the maximum risk of $1.65 ($2 loss - $0.35 credit received)
Outcome: Upon options expiration, gain 21.21% return on margin if QCOR closes above $25 or QCOR stock will be acquired at $24.65 (20.69% lower than the current price of $31.08) If QCOR falls below $25.00.
UnitedHealth Group, Inc.
UnitedHealth Group, Inc., a diversified health and well-being company, designs products, provides services and applies technologies that improve access to health and well-being services, simplify the health care experience and make health care more affordable. UNH was up 0.05% and closed at $55.24 on February 21, 2013. UNH had been trading in the range of $50.32-$60.75 in the past 52 weeks. UNH has a low beta of 0.91.
On February 21, 2013, analysts at Oppenheimer & Co. upgraded UNH from "Perform" to "Outperform" with a price target of $66, stating that the stock is still attractive despite a pessimistic outlook. Analysts have an overall Buy rating for UNH with an average price target of $66.67 (20.7% upside potential).
There are a few positive factors for UNH:
- Stronger revenue growth (3 year average) of 8.3 (vs. the industry average of 6.2)
- Higher operating margin of 8.4% and net margin of 5.0% (vs. the averages of 7.0% and 4.3%)
- Stronger ROE of 18.6 (vs. the average of 16.5)
- Lower P/E of 10.5 (vs. the industry average of 12.5)
- Lower Forward P/E of 8.3 (vs. S&P 500's average of 14.0)
- UNH generates an operating cash flow of $7.16B with a levered free cash flow of $5.85B
- UNH offers an annual dividend yield of 1.54%
Technically, the MACD is showing a bearish trend with diverging MACD difference. RSI (14) is indicating a bearish lean at 44.73. UNH is approaching its major support levels at 50-day MA of $55.01 and 200-day MA of $54.83, as seen from the chart below.
If UNH cannot hold above its 50-day and 200-day MA support levels, a credit put spread of April 20, 2013 $50/$52.5 put can be reviewed when the stock pulls back to $53-$53.5 price range.
Note: All prices are quoted from the closing of February 21, 2013 and all calculations are before fees and expenses. 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, but may initiate a long position in QCOR over the next 72 hours.