(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Bristol-Myers Squibb Co. (BMY) stock may be down by 8.5% in 2018, but shares have been on the rise, increasing by about 11% since early May. Now options traders are betting the stock will rise by another 8% by the middle of August. Should that happen, the stock would be up nearly 20% from those lows.
The company is expected to report second-quarter results on July 26 before the start of trading. Analysts are looking for the company to post strong earnings growth during the quarter on robust revenue growth. Analysts have also been upping those estimates over the past month, adding to what was already expected to be a solid quarter. (For more, see also: Bristol-Myers Could Be Getting Ready to Break Out.)
An 8% Rise
Traders have been actively betting that Bristol rises by just over 8% by options expiration on September 21. The calls at the $60 strike price have seen the number of open contracts nearly double since July 20 to roughly 12,600 contracts. The calls at that strike price cost about $0.65 per contract. A buyer of those calls would need the stock to rise by over 8% to $60.65, from its current price around $55.90, to break even if holding the options until expiration. (For more, see also: Bristol-Myers Stock May Rebound 9% Short Term.)
The options at the $57.50 strike price also suggest the stock is poised to rise with the number of calls outweighing the puts by a ratio of about 2 to 1.
One reason for the bullish bets may be what is forecast to be a strong second quarter for the company. Analysts are expecting the company to post earnings growth of over 18%, upping that outlook by about one percentage point over the past month. Additionally, revenue is seen climbing by about 6.5%, and those estimates have also increased by roughly one percentage point over the past month.
Not All Is Bullish
But not all is bullish because analysts have slashed their price targets on the stock since the middle of April by nearly 12% to $58.44. The bearish views came after the shares plunged when Bristol's cancer treatment Optivo had less than stellar results compared to Merck's Keytruda.
Bristol Myers' stock has a lot riding on it when it reports second-quarter results. If results are better than expected, it could reinforce the recent bullish sentiment propelling shares even higher. If the company fails to meet or beat expectations, it could enforce the bearish view, sending the shares back to their April lows.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.