NEW DIRECTIONAL PUT PLAYS
Cardinal Health, Inc. - CAH - close: 83.40 change: -1.60
Stop Loss: 85.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.1 million
Entry on July -- at $---.--
Listed on July 08, 2015
Time Frame: Exit PRIOR to earnings on July 30th
New Positions: Yes, see below
The rally in CAH looks tired and seems to have peaked. The stock delivered a nice run from its 2012 lows near $37.00 per share all the way up to (almost) $92.00 in April 2015. That's a +148% move. Unfortunately the rally looks broken.
It would be easy to confuse CAH for a healthcare stock but technically it's in the services sector. According to the company,
"Headquartered in Dublin, Ohio, Cardinal Health, Inc. (CAH) is a $91 billion health care services company that improves the cost-effectiveness of health care. Cardinal Health helps pharmacies, hospitals, ambulatory surgery centers, clinical laboratories and physician offices focus on patient care while reducing costs, enhancing efficiency and improving quality.
Cardinal Health is an essential link in the health care supply chain, providing pharmaceuticals and medical products and services to more than 100,000 locations each day and is also the industry-leading direct-to-home medical supplies distributor. The company is a leading manufacturer of medical and surgical products, including gloves, surgical apparel and fluid management products. In addition, the company operates the nation's largest network of radiopharmacies that dispense products to aid in the early diagnosis and treatment of disease. Ranked #26 on the Fortune 500, Cardinal Health employs 34,000 people worldwide."
They seem to be doing everything right. Business has improved. They raised their dividend a few weeks ago. They're making acquisitions. Their last couple of earnings reports have been positive. CAH reported its Q2 report on January 29th. Results beat estimates on both the top and bottom line with sales up +14.8%. Their Q3 report was announced on April 30th this year. Earnings were up +16% to $1.19 per share. That beat estimates. Revenues were up +18.4% to $25.38 billion, also above expectations. Yet traders sold this report with shares of CAH plunging from $89 to $84 in one session. The only complaint seems to be slow sales in CAH's medical segment, which only rose +4% versus a +20% jump in sales for the drug segment.
Six weeks later CAH had crawled its way back to just above the $90.00 level when the stock rolled over again. News that CAH had purchased privately held Harvard Drug Group for $1.12 billion on June 5th didn't seem to do much for the stock.
Wall Street analysts still seem bullish. In June CAH received two new price target upgrades with new targets at $97 and $100. The point & figure chart is not so optimistic. The P&F chart is bearish and currently forecasting at $78.00 target but this could get worse.
Technically CAH had fallen to support near $84 and its simple 200-dma. Shares had been consolidating around this support for the last few days. Today's drop (-1.88%) is a breakdown below $84 and its 200-dma and marks a new four and a half month low. Tonight we're suggesting a trigger at $83.15 to buy puts. Plan on exiting prior to CAH's earnings on July 30th.
Trigger @ $83.15
- Suggested Positions -
Buy the AUG $80 PUT (CAH150821P80) current ask $1.25
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike