Watch Out: Barbarians At The Gate For Covance (CVD)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Covance ( CVD) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Covance as such a stock due to the following factors:

  • CVD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $150.4 million.
  • CVD has traded 289,013 shares today.
  • CVD traded in a range 247.8% of the normal price range with a price range of $1.17.
  • CVD traded above its daily resistance level (quality: 231 days, meaning that the stock is crossing a resistance level set by the last 231 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on CVD:

Covance Inc., a drug development services company, provides a range of early-stage and late-stage product development services to the pharmaceutical and biotechnology industries worldwide. It operates in two segments, Early Development and Late-Stage Development. CVD has a PE ratio of 32.4. Currently there is 1 analyst that rates Covance a buy, 1 analyst rates it a sell, and 12 rate it a hold.

The average volume for Covance has been 908,200 shares per day over the past 30 days. Covance has a market cap of $5.7 billion and is part of the health care sector and health services industry. The stock has a beta of 0.68 and a short float of 2% with 1.01 days to cover. Shares are up 14.8% year-to-date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Covance as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • COVANCE INC has improved earnings per share by 48.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, COVANCE INC increased its bottom line by earning $3.16 versus $1.67 in the prior year. This year, the market expects an improvement in earnings ($3.80 versus $3.16).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Life Sciences Tools & Services industry average. The net income increased by 49.3% when compared to the same quarter one year prior, rising from $44.20 million to $66.00 million.
  • CVD's revenue growth trails the industry average of 25.4%. Since the same quarter one year prior, revenues slightly increased by 3.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CVD's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, CVD has a quick ratio of 2.38, which demonstrates the ability of the company to cover short-term liquidity needs.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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