AOL, Inc. (NYSE:AOL) jumped by a huge 18.52% yesterday after the news of the company being acquired by Verizon Communications Inc. (NYSE:VZ) in a $4.4 billion flashed in the market. The move will advance the growth ambitions of Verizon in mobile video and advertising. The deal is all cash that values the company at a premium of 23% over the 3-month volume weighted price which comes at $50. Naturally, the market decided to push the price of the stock to that level immediately. This deal is being investigated by the former attorney general of Lousiana Richard P. Leyoub and the firm of Leyoub O’Bell & Myers, LLC to check if the sale price and the entire price determination process are fair to the shareholders or not. On the other hand, the deal prompted the Needham analyst Laura Martin to reiterate the target of $57 for the stock with the “buy” rating unchanged.
Last week, AOL, Inc. (NYSE:AOL) reported the first quarter result that beat most of the expectations, leading to one of the biggest single day rallies for the stock. The earnings came at $0.34, excluding certain items, against the consensus of $0.32. Revenues reflected a growth of 7.2% on a y-o-y basis, coming at $625.1 million against the expected $594.6 million.
Technically, the Friday gap up created a bullish Island Reversal pattern. This pattern gets formed when a certain range of price action gets secluded from the rest of the chart through two gaps. It implies a dramatic reversal of sentiment and frequently results in very violent moves, as evident from the rise yesterday.
The stock is currently trading at a 52-week high but the gap preceding it looks unsustainable. These kind of gaps generally tends to be filled later, which means that the investors can expect a pullback in the next few days, providing a better point of entry.