Potential for strong Acthar script trends is the key reason that shorts may cover. QCOR shares reacted quite negatively when the article was first published, with shares down 3.3% by mid-morning given the publisher's (Citron Research) strong following. However, once the market interpreted the article and realized the lack of new, impactful information, QCOR snapped back and closed up 3.1% for the day. The content of the article and the swing in the stock demonstrate that the short story has played out, and investors are ready to begin valuing QCOR at more reasonable levels. Our prior article pointed out that QCOR's management indicated that Acthar Gel is continuing to grow, hence the company's move to accelerate its quarterly dividend payment. Even flat growth justifies significant cash flow and a higher valuation than the stock's current price. For example, using a 4x sales multiple on Acthar's annual run-rate from 3Q12 ($560M) implies a market cap of $2.24 billion, or $37 per share, with further upside if sales demonstrate better growth. The stock could climb to the high $30 to mid-$40 range as investors gain confidence that fundamentals remain intact ahead of earnings or prescription news. Should the company release favorable prescription trends for Acthar Gel before year-end, as we anticipate, this could be the catalyst that gets QCOR trading into the $30 range. As a result, this could be an event that the shorts don't want to hang around for.
Technically, QCOR has firmed up and could break out to the high-$30 level. On Thursday QCOR held key support at $24.50, which is now a quadruple bottom with further support from the 50-day Simple Moving Average (SMA) residing at $24.00 just below. On the upside, resistance lies at $27.50, $28.67 and the $29.60 levels. Notably, if QCOR breaks through this last resistance point, a move to $33.00 is likely, and the chart suggests a move towards $37.57 would be next.