Shire PLC (SHPG) Bulls Can't Catch a Break

Shire PLC (ADR) (SHPG) has turned lower, despite an earnings beat

Feb 11, 2016 at 10:58 AM
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Amid sector-related headwinds, Shire PLC (ADR) (NASDAQ:SHPG) has turned lower, despite upbeat earnings. Specifically, the pharmaceutical firm said its fourth-quarter profits jumped 13%, largely thanks to brisk sales of its ADHD drug Vyvanse. However, after being up as much as 3.1% earlier, the shares are now off 0.6% at $153.01, which comes as more disappointment for option bulls.

Indeed, optimism has been sky-high in SHPG's options pits. During the past 50 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 7.63 calls for each put -- yielding a call/put volume ratio that ranks in the bullish 89th percentile of its annual range.

More recently, the July 190 call has been extremely popular, seeing the biggest increase in open interest during the past 10 trading days. According to the ISE, CBOE, and PHLX, nearly 2,200 long positions have been initiated, suggesting option players foresee SHPG toppling $190 by July expiration.

Short-term traders are also extremely call-skewed toward the shares. The stock's Schaeffer's put/call open interest ratio (SOIR) rests at an annual low of 0.11, with calls outstripping puts by a roughly 10-to-1 margin among options with a shelf-life of three months or less.

Meanwhile, the brokerage community is every bit as upbeat toward SHPG. Of the 12 analysts with coverage on the shares, 10 have handed out a "strong buy" rating, versus two "holds" and not a single "sell." What's more, the consensus 12-month price target of $252.17 stands at a lofty 65% premium to current levels -- and in territory not charted since August.

All of this is strange when considering SHPG's woeful performance on the charts. Since hitting a record high of $270.63 in late July, the stock has surrendered over two-fifths of its value. In fact, the shares are now poised to close below their 50-month moving average for the first time since September 2009.

Given these technicals, and the fact short interest on SHPG soared over 800% during the last two reporting periods, it's possible some of the recent call buying has been at the hands of short sellers hedging their bets. However, a capitulation among "vanilla" bulls -- plus a possible round of downgrades and/or price-target cuts -- threatens to further undermine the embattled stock.

As alluded to, Shire PLC (ADR) (NYSE:SHPG) isn't faring particularly well today, despite a solid showing in the earnings confessional. On a related note, it's worth noting that CEO Dr. Flemming Ornskov said earlier he's "confident" the company's acquisition of Baxalta Inc (NYSE:BXLT) will close by mid-2016, but added that this will be a "year of integration" rather than M&A.

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