Drug Stock Flying to New Highs After Lofty Upgrade

Stifel also hiked up its price target by $30

Assistant Editor
Jul 7, 2020 at 9:50 AM
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The shares of Acadia Pharmaceuticals Inc (NASDAQ:ACAD) are up 3.4% at $55.50 at last check, so far brushing off the broad-market breather. This rises comes after Stifel upgraded the stock to "buy" from "hold," while hiking its price target all the way up to $71 from $41. The analyst in coverage noted that the key opinion leader feedback pared his skepticism about the company's dementia-related psychosis drug, primavanserin. 

Today's pop has ACAD hitting a new record high, and breaking out of the $54 region that has kept a cap on its previous gains. With a slew of moving averages below acting as support, the equity is up around 28% year-to-date. What makes today's upgrade so interesting is that coming into today, analysts were already confident on Acadia stock, with 14 out of 16 sporting a "buy" or better, with no sells or worse in sight. The 12-month consensus target price of $61.27 is a 14.1% premium to current levels.

Albeit with relatively low volume overall, this confidence is evident in the options pits as well. This is per ACAD's 50-day call/put volume ratio of 9.07 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 79% of readings in the past year. Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.29 sits in just the 8th percentile of its annual range, suggesting short-term option players have rarely been more call-heavy during the past 12 months.

Now might be a good time to weigh in on these options as well, as the security's Schaeffer's Volatility Index (SVI) of 60% stands higher than all but 16% of other readings from the past year. This implies that near-term option traders are pricing in relatively low volatility expectations; a bonus for premium buyers.

However, some of this call buying may be shorts hedging against a possible upside. The 11.49 million shares sold short account for a healthy 8% of the stock's available float, and would take over nine days to cover at ACAD's average pace of trading. In other words, an unwinding of these bearish bets could take the stock even higher. 

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