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Bears Vindicated by ViroPharma's Plunge

Short interest surged on underperforming VPHM

by 5/1/2012 12:30:12 PM
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Early this morning, ViroPharma, Inc. (VPHM - 19.53) posted a first-quarter profit of $20 million, or 26 cents per share, compared with a year-ago profit of $36.4 million, or 40 cents per share. On an adjusted basis, earnings came in at 31 cents per share, lower than analysts' expectations of 42 cents a share. Revenue rose 7% to $135.8 million, but failed to top the consensus view of $148.8 million. The company is predicting 2012 revenue to range between $450 and $500 million, while Wall Street is looking for full-year revenue of $502.4 million.

After this poor showing, VPHM has taken a roughly 10% hit so far today, and is cowering below its 80-week moving average and the $20 mark -- the latter of which has not been breached since November 2011. And the shares haven't been too hot in 2012, either, pulling back more than 20.5% year-to-date. In fact, over the past two months, the stock has lagged the broader S&P 500 Index (SPX) by more than 35%.

Weekly

Ahead of earnings, there seemed to be plenty of negativity already priced into VPHM. Short interest on the equity swelled 35.6% during the past two reporting periods, and now accounts for a hefty 14.5% of the security's available float. At VPHM's average pace of trading, it would take three sessions for all of these shorted shares to unwind.

Meanwhile, options players are growing more bearish toward VPHM, as evidenced by the stock's 10-day put/call volume ratio of 0.64 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio arrives in the 69th percentile of its annual range, signaling an increased appetite for puts over calls during the past couple of weeks.

Furthermore, the equity's Schaeffer's put/call open interest ratio (SOIR) of 3.61 indicates that puts more than triple calls among options slated to expire within three months. This ratio ranks in the 88th percentile of its annual range, suggesting that short-term options players have seldom been more put-heavy during the past year.

The remaining brokerage bulls could rethink their positions, should VPHM's earnings-induced decline persist. There are seven "strong buy" endorsements, versus eight tepid "holds." Plus, the average 12-month price target rests at $27.69, which represents a 44.8% premium to today's session low of $19.12.

Considering VPHM's technical and fundamental woes, a fresh bout of downgrades and/or price-target cuts, or a continued submission by bullish traders, could provoke a new wave of selling pressure for VPHM.

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