Short Sellers Could Create Buying Power for This Pharma Stock

A round of upgrades could keep the wind at ESRX's back

Dec 19, 2017 at 9:43 AM
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Pharmacy benefits provider Express Scripts Holding Company (NASDAQ:ESRX) has found new life since its mid-October bottom, rallying roughly 28% since to close at its highest point since March on Friday. In the process, the shares pushed through the $64 level, which is three times the 2009 low, and have broken out north of a trendline connecting lower highs since mid-2015. On the fundamental front, the company just upped its full-year forecast, and when you consider the vast amount of negativity surrounding ESRX, the case for an extended run higher looks strong.

WKEND ESRX Weekly Chart

Short sellers could provide fresh buying power, should they continue covering their positions. For instance, the 5.3% of the equity’s float dedicated to short interest would take close to eight sessions to buy back, based on average daily volumes. This would seem to be ample sideline cash to fuel even more upside.

Plus, analysts have yet to embrace the suddenly outperforming stock. This is evidenced by the fact the majority of brokerage firms tracking Express Scripts have “hold” or “strong sell” ratings in place. A round of upgrades could also keep the wind at ESRX’s back.

Meanwhile, the security’s Schaeffer’s Volatility Index (SVI) of 23% ranks in the low 14th annual percentile, pointing toward unusually low volatility expectations at the moment for ESRX. And our recommended call has a leverage ratio of 6.31, meaning it’ll double in value on a 15.86% increase in the underlying security.

Subscribers to Schaeffer's Weekend Trader Alert options recommendation service received this ESRX commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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