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Corinthian Colleges' 2Q Results Brings Options Bulls to the Table

COCO surges 30% after reporting stronger-than-expected earnings

by 2/1/2012 12:30:29 PM
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Option activity is heavy on Corinthian Colleges, Inc. (COCO - 3.94) in today's session, after the for-profit educator followed a number of notables into the earnings booth this morning. Options players are showing up from both sides of the aisle, but calls are easily outnumbering their put partners. More than 8,200 call contracts have crossed the tape, representing 24 times their average intraday volume. Meanwhile, fewer than 1,500 put contracts have changed hands, or 18 times their average intraday pace.

For its fiscal second quarter, COCO banked a profit of $1.8 million, or 2 cents per share, a marked improvement from its year-ago loss of $163.7 million, or $1.94 per share. Excluding items, earnings arrived at 4 cents per share. Revenue, on the other hand, fell 14% to $415.4 million. Thanks to improving student enrollment, the results came in better-than-expected, with analysts calling for earnings of 1 cent per share on $415.2 million in sales. Looking ahead, COCO is calling for a current-quarter profit of 15 cents to 17 cents per share on revenue ranging between $430 million and $440 million. By comparison, analysts are forecasting slimmer earnings of 13 cents per share on $424.8 million in sales.

Along with call players, Wall Street is celebrating the results, with the stock up more than 30% in today's session. In fact, COCO has had a standout run on the charts, adding a formidable 40% on a year-to-date basis. Furthermore, today's post-earnings push puts the equity squarely above its 320-day moving average -- a trendline not toppled in almost two years.

Price Chart of COCO

Outside of the options arena, sentiment toward the stock has been rather dismal. Short interest rose by 9.1% over the past two weeks, and now accounts for a staggering 32.4% of COCO's available float. It would take more than a month to cover these shorted shares, at the equity's average daily trading volume.

Elsewhere, Zacks reports that nine out of 10 analysts maintain a "hold" or worse recommendation toward the stock. In addition, Thomson Reuters calculates the consensus 12-month price target to be $2.42 -- representing a steep 39% discount to COCO's current price of $3.94. A capitulation by either of these bearish groups in the form of a short-squeeze rally, upgrades, and/or price-target boosts could provide the security with a contrarian-related boon in the near term.


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