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Bullish Opportunity in Mylan Earnings

Mylan's fundamentals have the odds stacked against the short side


Mylan Inc. (NASDAQ:MYL) develops, manufactures and distributes generic and branded generic pharmaceuticals, specialty pharmaceuticals, and active pharmaceutical ingredients.  The wave of generic drugs coming to the market has helped MYL shares surge by more than 20% over the last twelve month, outpacing the market by twofold.

The company falls into our crosshairs today as they prepare to announce their latest earnings results on Wednesday, February 27, after the market’s close.  The company’s performance on the earnings front has been better than the market as we’ve seen EPS beat analyst expectations by an average of 6.75% over the last four quarters.

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The positive earnings results over the last year have failed to convince the shorts that MYL will have a good showing on the earnings this week as short sellers just increased their short positions by 13% ahead of the earnings announcement.  With the recent addition to short positions, the short interest ratio for MYL is now back above 7.0, signaling that there is a chance for the stock to take them off-guard and force a potential short covering rally.

Given that some of the strongest rallies in this market have come from short squeezes, our research is suggesting that the bulls foraging for trades would be well-served by taking a position in the shares ahead of earnings on Thursday as an earnings beat will propel the shares further into new high territory.  Our expectations are for MYL to march towards a target of $30 rapidly on the tails of a positive earnings report.

Recommendation: For those options traders out there, the April 29 calls (MYL130420C00029000) look attractive, especially when you consider the fact that they are priced less than the March options at the same strike price due to March prices posting higher volatilities due to the upcoming earnings announcement.

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