Goldman Sachs Pumps The Brakes On Mallinckrodt Stock

Goldman says sell MNK stock on Achtar concerns

Managing Editor
Sep 11, 2018 at 9:54 AM
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Mallinckrodt PLC (NYSE:MNK) stock is down 5.2% to trade at $31.30 this morning, after Goldman Sachs downgraded the pharmaceutical concern to "sell" from "neutral." While the analyst in coverage upped their price target by $1 to $28, they highlighted longer-term revenue concerns stemming from the company's multiple sclerosis drug Acthar. More specifically, Goldman sees insurance and competitive challenges facing the drug in the long term.

Today's price action puts a damper on what's been a solid year for Mallinckrodt stock, which still boasts a 39% lead in 2018. Since a late-May bottom below $12, MNK fought back to add 169% thanks to an earnings-induced bull gap last month. Even with today's reaction to the downgrade, the shares appear to have found support at their 30-day moving average.

Short sellers can cheer today's pullback, although many have already hit the exits -- which has likely assisted in MNK's longer-term upside. Short interest fell by 23% in the two most recent reporting periods, yet the 24.54 million shares sold short still represents a whopping 38% of MNK's total available float. 

Digging into options, near-term traders are more call-skewed than usual, with the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.32 ranking in the low 6th annual percentile. In other words, call open interest for options expiring within three months outweighs put open interest by a wider-than-usual margin.

The good news for those buying premium is that short-term options are attractively priced right now, from a volatility perspective. This is based on the security's Schaeffer's Volatility Index (SVI) of 48%, which arrives in the 2nd percentile of its annual range.


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