Gen Digital Inc. (GEN) has seen unusually high call option volume today. This was after the software company released strong free cash flow (FCF) results on May 7. The unusual call volume may indicate that GEN stock is undervalued.
GEN is trading at $24.40 in midday trading today, up slightly. Since before the earnings release, GEN stock has risen almost 25% (+24.7%) from $19.56 on May 6.
The unusual call options volume can be seen in today's Barchart Unusual Stock Options Activity Report. It shows that 3,800 call option contracts have traded at the $25.00 strike price for expiry on July 17, 2026, 59 days from today.
This $25.00 call option strike price is just 2.4% over the trading price. The premium bid-ask spread was $1.20 to $1.45, or the midpoint of $1.33.
So, this means that call option buyers would expect GEN stock to rise to $26.33 ($25.00 + $1.33) over the next two months to July 17.
That is just +7.90% higher than today's price. But that does not seem a huge hurdle, especially given the strong earnings and free cash flow (FCF) results, as well as the recent uptick in GEN stock.
Let's look at Gen stock's fair value.
Strong FCF and Prospects
Gen Digital, which controls several popular consumer software security brands such as Norton, LifeLock, Avast, Avira, AVG, and CCleaner, reported 27% higher revenue and diluted EPS up 15% for its fiscal year ending April 3.
Moreover, its free cash flow (FCF) rose 24% in 2026 to $1.496 billion from $1.2 billion last fiscal year, according to Stock Analysis. It also represented 29.9% of revenue vs. 30.65% last year, according to Stock Analysis, despite higher capex and revenue levels.
This implies that going forward, assuming higher revenue forecasts, Gen Digital's FCF could be significantly higher.
For example, analysts now project $5.7 billion in revenue for next year, ending March 31, up 6.7% YoY. So, if the company can maintain a 30% FCF margin, its FCF could rise to $1.71 billion.
That is 14.3% higher than last year's $1.496 billion in FCF. That implies GEN stock could be worth significantly more.
Higher Fair Value and Price Targets
For example, using a 10% FCF yield, i.e., 10x FCF, Gen Digital could be worth $17.1 billion (i.e., $1.71b x 10). That represents a potential 15.78% market value rise over its present market cap of $14.769 billion.
In other words, GEN stock could be worth $28.25 (i.e., $24.40 x 1.1578). Moreover, other analysts agree. For example, Yahoo! Finance reports that the average price target of 11 analysts is $30.01 per share.
In addition, Barchart's mean analyst survey price target is $31.12, and AnaChart's survey price is $28.02 from 6 analysts.
So, that is why some investors may be buying GEN call options expiring in 60 days. The breakeven point of $26.33 is below the $28.25 fair value of the stock over the next year. It implies a potential capital gain could be made by buying these calls.
However, there is no guarantee this will occur, and this is essentially a speculative investment. So, investors should be careful in copying this trade.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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