Outperforming DISCA Dips After Downgrade

The options pits have been overwhelmingly bearish on the stock

Deputy Editor
Mar 23, 2021 at 10:23 AM
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The shares of Discovery Communications Inc. (NASDAQ:DISCA) are down 5.5% to trade at $70.52 at last check, after UBS downgraded the stock to "sell" from "neutral." Though the equity is off to a strong start, the firm expects streaming tailwinds to simmer down, and cited the stock's year-over-year outperformance as a challenge for DISCA's current risk/reward profile. However, UBS also hiked its price target to $46 from $24. 

DISCA has been soaring since the start of the year, carving out a clean path of higher highs with help from its 10-day moving average. Today's dip has the equity faltering further from its March 19 record high of $78.14, with the $78 level rejecting the stock during yesterday's trading as well. Year-to-date, the security is up around 130%. 

The brokerage bunch was already quite bearish on DISCA coming into today. Of the 16 analysts in coverage, 12 carried a "hold" or worse rating. Plus, the 12-month consensus price target of $46.80 stands at a 32.2% discount to current levels. 

Sentiment is similar in the options pits, per Discovery Communications stock's 10-day put/call volume ratio of 3.33 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than all but 1% of readings from the past year, indicating a much stronger-than-usual penchant for long puts during the last couple weeks. 

Meanwhile, short interest represents a healthy 29.1% of the stock's available float. In other words, it would take over five days for shorts to buy back these bearish bets at DISCA's average pace of trading. 

 

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