Bulls Eye More Upside for CHGG Stock Ahead of Earnings

The stock tends to surge the day after earnings

by Lillian Currens

Published on Feb 6, 2020 at 12:52 PM

With a fourth-quarter earnings report due out next week on Monday, Feb. 10, options bulls are eyeing education specialist Chegg Inc (NYSE:CHGG) today. While overall volume is still quite low, 611 calls have crossed the tape so far, two times the intraday average, and more than three times the number of puts exchanged. The February 40 call is the most popular, with positions also being opened at the March 60 call. At last check, CHGG is up 2.5% to trade at $43.30.

The stock has been on a tear lately, with support stemming from its 20-day moving average, which has caught several pullbacks since CHGG gapped higher during its last earning's report in November. Now, the security is once again pushing up against the $44 region, which has served as resistance in the past.CHGG Feb 6

Looking back, in the past two years the equity has only seen one negative return post-earnings, and boasts several impressive next-day pops, including the aforementioned 14.4% surge staged back in November, and a 17.1% gain in February 2018. This time around, the options market is pricing in a 12.5% swing, which eclipses CHGG's 10.7% swing averaged during its last eight post-earnings sessions, regardless of direction. 

Most analysts are optimistic on CHGG, with 10 in coverage calling the stock a "buy" or better, but there's still room for upgrades. Two still say "hold," and the consensus 12-month target price of $45.58 is a slim 5.7% premium to current levels. 

Short sellers seem to be falling off the bearish bandwagon, too. Short interest has slipped 2.4% in the last reporting period. However, the 18.83 shares sold short still represent a hefty 16.3% of Chegg's available float, and would take over 14 days to cover, at the stock's average daily pace of trading. This could put even more wind at the equity's back, should even more of these pessimistic positions begin to unwind. 

 


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