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Earnings Preview: High Hopes for Biogen Idec Inc. (BIIB)

Calls increasingly popular among BIIB options players

by 4/24/2013 1:09 PM
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Biogen Idec Inc. (NASDAQ:BIIB) is dipping into the earnings confessional tomorrow morning to share its first-quarter results, and expectations may be elevated, given the stock's recent price action. In fact, the speculative crowd has gathered on the bullish side of the fence, judging by recent trends in the options pits.

During the past 10 trading days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than twice as many calls have been purchased to open as puts. The resultant 10-day call/put volume ratio of 2.07 is up from 1.38 at the beginning of the month, and is higher than 70% of all comparable readings taken during the past year.

Meanwhile, Schaeffer's put/call open interest ratio (SOIR) for BIIB stands at 1.00, meaning call open interest and put open interest are at parity for options expiring in the next three months. Compared to the last year's worth of readings, however, this ranks in the 8th percentile, suggesting call open interest has rarely been as prevalent.

Option players are not alone in their optimism -- the stock has earned a number of upgrades of late, and is now ranked as a "buy" or better at 10 firms. There is room for growth in this arena, however, as 11 other brokers still maintain a "hold" rating on the biotech firm. What's more, the average 12-month price target of $201.02 is a modest discount to the stock's current price.

All of this bullish posturing is not a huge surprise, given the stock's strong performance on the charts. Currently trading at $209.68, the stock is up roughly 65% in the last 12 months and tagged a new all-time high of $217.80 in yesterday's trading. In 2013 alone, BIIB has rallied almost 43%, and has benefited from the dual support of its 10-day and 20-day moving averages since mid-January. Finally, the shares have outperformed the S&P 500 Index (SPX), on a relative-strength basis, by nearly 35 percentage points in the last three months.

Analysts are expecting the company to issue per-share results of $1.61 (excluding items), which is a 15% improvement over year-ago results. In the last seven quarters, BIIB has chalked up three negative and four positive earnings surprises, but has nonetheless managed to move higher on earnings day on six occasions. None of the moves have been overwhelming, though, amounting to an average post-earnings daily change of 0.83%.


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