3 Drugmakers in Analysts' Bullish Crosshairs

Jazz Pharmaceuticals plc - Ordinary Shares (NASDAQ:JAZZ), Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), and Bristol-Myers Squibb Co (NYSE:BMY) all received bullish brokerage notes today

by Kirra Fedyszyn

Published on May 11, 2016 at 1:54 PM
Updated on May 11, 2016 at 1:57 PM

Drugmakers are on the move today, with several companies turning in their quarterly earnings reports recently. Analysts have also been raising their outlooks on many firms across the sector, but not all of the stocks are gaining on the bullish attention. Three pharmaceutical stocks receiving upbeat notes from the brokerage bunch today include Jazz Pharmaceuticals plc - Ordinary Shares (NASDAQ:JAZZ), Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), and Bristol-Myers Squibb Co (NYSE:BMY).

JAZZ is up 2.8% at $151.96 today, after the drugmaker reported first-quarter earnings shy of estimates, but raised its full-year outlook. In response, Mizuho Securities upgraded the stock's rating to "buy" from "neutral," and raised its price target to $193 from $137. Meanwhile, Leerink and UBS also upped their price targets on Jazz, to $198 and $168, respectively. Analysts were already largely in JAZZ's corner -- with 11 of 12 sporting "strong buy" recommendations -- and options traders have been unusually call-heavy of late. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.29 shows calls more than tripling puts among options expiring within the next three months. Moreover, with ratio sits lower than 94% of all readings taken in the past year.

On the charts, the shares are up 8.1% in 2016, with their most recent pullback contained by double-barreled support at their 30- and 200-day moving averages. Plus, these two trendlines just formed a bullish cross. The last time this signal occurred, in mid-2010, the shares began an uptrend that saw Jazz Pharmaceuticals plc nearly quadruple in value in less than a year.

ARIA is 0.4% higher at $7.67, bringing its year-to-date lead to nearly 23%, after Barclays raised its price target on the drug stock to $8 from $6. The company reported a quarterly loss in line with estimates Tuesday morning. Analysts appear fairly optimistic, with three out of five calling ARIA a "strong buy." Not everyone is convinced, however. While short interest on the security fell by more than 13% during the two most recent reporting periods, these bearish bets still account for 17.7% of ARIA's available float. At the stock's typical pace of trading, it would take over 12 sessions to buy back all those shares.

Meanwhile, though action in Ariad Pharmaceuticals, Inc.'s options pits is typically light, traders have lately been extremely call heavy. During the past 10 days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly 83 ARIA calls for each put -- with the resultant ratio of 82.57 in the 95th percentile of its annual range.

BMY is bucking the bullish biotech trend, trading 0.5% lower at $71.19, despite a price-target hike to $76 at Jefferies and a positive development on its melanoma drug. The company reported strong earnings in late April, which boosted the shares to a 15-year high of $73.06. But analysts remain split, with half calling BMY a "buy" or better, and half maintaining "hold" or "strong sell" recommendations. This leaves the door wide open for upgrades.

Short interest has been declining in recent weeks, to account for just 1.2% of the stock's total float, but options traders remain unusually bearish. At the ISE, CBOE, and PHLX, BMY has 10-day put/call volume ratio of 0.68 -- higher than 76% of all readings taken in the past year. From a contarian perspective, an unwinding of this negativity could send the long-term outperformer even higher.

On a related note, now could be an attractive time to buy premium on Bristol-Myers Squibb Co. The stock's Schaeffer's Volatility Index (SVI) of 20% sits in the low 10th percentile of its 12-month range -- meaning short-term options are pricing in low volatility expectations at the moment.

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