Good News May Rally This Pharmaceutical Company

07/01/2010 12:01 am EST

Focus: STOCKS

Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

AstraZeneca (AZN) has been the focus of some heavy brokerage firm activity today after the company successfully defended its US Crestor patent. UBS lifted its price target and stated that the victory significantly safeguards around 17% of earnings at risk due to the Crestor trial. From here, the brokerage firm expects earnings momentum to continue and believes that AZN is due to generate about $35 billion of net cash by 2015.


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Elsewhere, JPMorgan Cazenove upgraded AZN from "underweight" to "neutral," while Jefferies International upgraded AZN to "hold" from "underperform." Prior to today's action, the company had earned one "strong buy" rating, seven "holds," and three "sells." There is still ample room for additional upgrades to help boost the shares.

Ahead of the ruling, options players preferred the stock's puts. The International Securities Exchange (ISE) reports 1.2 puts purchased to open for every one call purchased to open during the past ten trading sessions. This ratio of puts to calls is higher than 74% of all those taken during the past 12 months, indicating a rising skepticism.


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Short sellers are also increasing their bearish position. During the past 12 months, the number of AZN shares sold short increased by 20.6% to 12 million. This accumulation of pessimistic positions is five times the stock's average daily trading volume. An unwinding of these bearish bets could fuel a significant rally in the shares.

By Jocelynn Drake of Schaeffer’s Trading Floor Blog

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