Biopharma giant and Nasdaq 100 constituent Regeneron (REGN) reports earnings Wednesday morning. But with REGN stock up 40% year-to-date, and 20% in the past month alone, how much more room does it have to run?
Let’s take a look at REGN stock’s recent quarterly announcements, the price chart and what REGN’s options market is gearing up for in front of the report.
In front of Wednesday’s premarket Q3 earnings release, analysts are forecasting profits of $3.20 per share for REGN stock.
The earnings estimate for REGN compares to 2014’s Q3 result of $2.52 and represents a year-over-year increase of 27%.
On the revenue side, analysts are calling for quarterly sales of $1.05 billion for REGN — up 45% year-over-year. That compares to 2014’s Q3 result of $726 million and growth of 51%.
Full-year sales are estimated at $4 billion for a year-over-year increase of 44%, continuing Regeneron’s trend of mid-double-digit revenue growth over the past three years.
Quarter-to-quarter earnings results have been modestly choppy for Regeneron. Overall though, profits have been trending higher with the Street forecasting earnings growth of nearly 24% for 2015 on profits of $12.37 per share of REGN stock.
After the past four reports, REGN has generated very mixed close-to-close moves of 4.81%, -0.30%, 0.25% and -5.79%.
REGN Stock Weekly Chart
For the past few years, shares of REGN had been on a tear until mid-summer in 2015. Don’t get me wrong, there had been corrective moves in the 20% to 30% range over the past few years. But in running up from about $25 per share to over $600 from 2011, there was nary a base count reset on the weekly chart.
Base count resets are important because uptrending stocks like REGN become more prone to the next base breakout, resulting in technical failure when excess bullish behavior hasn’t been purged.
In general, by the third to fourth base, breakouts become less likely to succeed until corrective price action takes shares below the low of the latest base. Until this summer, REGN appeared all but immune to this time-tested rule.
Nonetheless, while it took a good while to materialize, as part of REGN’s summer plunge of about 26%, REGN stock did finally reset its base count as shares moved through the lows of the prior base before reversing back up.
With the base count reset, REGN is in theory in better position to move higher and forge a successful base breakout. And as the chart shows, REGN appears to be working towards that goal in front of Wednesday’s earnings report.
REGN Stock Options Pricing
With REGN stock near $575 as of this writing, REGN options traders are pricing in a 68% chance shares of Regeneron will remain within a range of roughly $540 to $610 through this Friday.
The math behind the REGN stock calculation uses the Weeklies November 6 $575 call and put, which are trading on implieds of 57%.
With expiration this Friday, the pricing in the REGN straddle is the purest play on the earnings event and tells us what traders collectively expect from REGN stock in the aftermath of its quarterly announcement.
The expected dollar move up or down works out to about 6% by Friday’s close. The figure is slightly larger than even the biggest event reactions from REGN.
Traders are obviously bracing for a larger-than-normal price move in REGN stock.
REGN Stock Bull Call Spread
For bullish traders, the regular November $590/$600 bull call spread for up to $4.00 is favorable.
The REGN vertical contains risk to the amount paid, which in this case is $4.00 or less. It also allows the trader to participate in REGN through the third Friday of November. Given REGN’s mixed reaction history, that’s not such a bad idea.
The potential max return of $6.00 or 150% is possible above $600, which requires a 4% move higher by expiration.
With traders preparing for a large move, and given REGN’s erratic price history, going fully in-the-money with this vertical is certainly possible.
Lastly, by placing the spread within the anticipated loose trading range set by market participants, REGN traders are putting themselves in position for a more favorable outcome than otherwise.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
