The Oversold Pharma Stock Set to Bounce

Stifel downgraded Omega Healthcare after a disappointing earnings report and full-year forecast

Oct 31, 2017 at 9:27 AM
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Analysts are weighing in on chip stock Cypress Semiconductor Corporation (NASDAQ:CY), real estate investment firm (REIT) Omega Healthcare Investors Inc (NYSE:OHI), and big pharma name Merck & Co., Inc. (NYSE:MRK). Here's a quick roundup of today's bearish brokerage notes on CY, OHI, and MRK.

Barclays Thinks CY Stock's Upside is Already Priced In

Cypress Semiconductor shares are down 2.6% ahead of the bell, after Barclays cut its rating to "equal weight" from "overweight" and lowered its price target to $17 from $18. This new target represents a slim 4.2% premium to last night's close at $16.31, with the brokerage firm saying most of CY stock's upside is already priced in.

Heading into today's trading, the security was up 42.6% year-to-date, and topped out at a five-year high of $16.34 yesterday. A steady stream of short covering has likely helped send CY up the charts. Since early April, short interest has declined 23.2%. Nevertheless, there are still 32.05 million shares sold short, or 7.5 times the stock's average daily pace of trading.

Stifel Downgrades Omega Healthcare Stock After Earnings

Omega Healthcare stock is down 7.7% in electronic trading, after the REIT reported disappointing third-quarter adjusted funds from operation (FFO), and lowered its full-year adjusted FFO guidance. A downgrade to "hold" from "buy" at Stifel -- which also cut its OHI price target to $29 from $35 -- is only stoking the bearish flames.

At last night's close of $30.97, OHI shares were down a modest 0.9% in 2017. Today's projected downside move could bring the stock's 80-month moving average into play. This trendline -- currently located at $30.24 -- has contained a number of pullbacks over the past six years, and OHI has not closed south of here since August 2011.

Short sellers, meanwhile, have been betting on bigger losses for Omega Healthcare Investors. In the past six months, short interest has surged 22.5% to 32.65 million shares -- just a hair off the mid-August multi-year peak of 33.69 million shares.

Merck Stock Gets Mixed Analyst Attention

Analysts continued to weigh in on Merck stock, following its recent Keytruda-related bear gaps. While BMO lowered its price target to $68 from $70, Jefferies lifted its rating on the shares to "hold" from "underperform" and its price target to $55 from $54 -- though the latter price target sits right in line with last night's close at $54.71.

Considering the stock has shed nearly 12% in the past two sessions -- and hit an annual low of $54.41 yesterday -- MRK stock's 14-day Relative Strength Index (RSI) settled Monday at 14, well into oversold territory. This may explain why the shares are up 0.6% in pre-market trading, with the Dow stock seemingly due for a short-term bounce.


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