CareFusion Corporation: Riding the Bull All the Way to the Peak

We round up another impressively profitable week of trading stock options as we examine possibilities in the options of CareFusion Corporation (NYSE:CFN). CareFusion Corporation with its market capitalization of $9.40B is a global medical technology company. Its offerings include established brands used in hospitals throughout the United States and approximately 130 countries worldwide. The Company operates in two segments: Medical Systems and Procedural Solutions.

Soaring to New Highs

CFN Stock Chart

The chart above shows how shares of CareFusion Corporation have been trading since the markets opened year. The stock is up a modest 17.45% within that period and the share price currently trades around $46.77 apiece.  However, I am more impressed with the fact that the shares of CareFusion have made 17 new highs within the last one month. In addition, worthy of attention is the fact that the stock is trading at a premium to its 20, 50 and 200-day moving averages.

Strong Fundamentals Supports Calls

One of the major reasons to be optimistic about CareFusion is the strength of the fundamentals that backs the technical indicators earlier mentioned. For instance, shares of CareFusion are trading at a P/E of 23.6 at a significant discount to the industry average of 34.8. The company has a Price/Book ratio of 1.7 compared to the industry average of 4.2. CareFusion has a Price/Sales ratio of 2.6 compared to the industry average of 3.3. The company’s Price/Cash Flow ratio is also impressive at 14.4 compared to the industry average of 17.1.

I am also impressed by the company’s revenue and earnings projection for the short term. For instance, it is expected that revenue will increase by at least 6.20% this year and that revenue should increase by an additional 3.50% next year. In addition, earnings is expected to increase 13.60% this year while we can look forward to a 10.80% increase in earnings next year. The best part is that the company expects earnings to increase at an annual rate of 11.65% through 2019.

Increased M&A Activity says Buy Calls

Another major reason I am optimistic about the growth prospects of CareFusion is the company’s plan to grow globally through acquisitions. You will remember that CareFusion completed the acquisition of Grupo Sendal SL about one year ago. The company has completed three acquisitions after the Grupo acquisition and it is still working towards other strategic acquisitions.

The recent move by CareFusion towards expanding the reach of its global presence is an exclusive eight-year agreement that it signed with Terumo Corporation to co-brand, market, and distributes Terumo’s SurFlash line of safety peripheral IV catheters for the acute care use in the United States.

CareFusion management has reiterated its commitment to assign a significant part (about 50%) of free cash flow to pursuing Mergers and Acquisition targets and I strongly believe that the acquisitions will generate better economies of scales and improve margins for the company.

How to Trade CFN Options

Shares of CareFusion touched that the 52-week high of $46.79 again today and I strongly believe that we can safely ride this bullish momentum until the stock crosses $50. I recommend buying the CFN Dec 2014 45.000 call (CFN141220C00045000) at an asking price of $2.50.

— Daily Option Alerts

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