Industrial and construction supply company Fastenal (FAST) is scheduled to release third-quarter earnings report Friday, with Wall Street expecting a profit of 45 cents per share. While the figure is up nearly 10% from 41 cents per share a year ago, investors will likely be more focused on Fastenal’s margins and guidance.
What’s more, any signs that the company is finally benefiting from a rebound in industrial and construction spending could go a long way toward bolstering investor confidence in Fastenal stock.
Historically, FAST has been a steady performer on the earnings stage, matching the consensus estimate in six of the past eight reporting periods. Not surprisingly, this middling fundamental performance hasn’t endeared Fastenal stock with the brokerage community. In fact, Thomson/First Call reports that FAST has attracted only four “buy” ratings, compared to seven “holds” and one outright “sell.”
Pessimism is also pervasive among the short-selling crowd. Specifically, short interest for Fastenal stock rose to 32.8 million shares during the most recent reporting period. As a result, nearly 14% of the stock’s total float, or shares available for public trading are now sold short. If the company’s quarterly report were to arrive better than expected, this wealth of short interest would be more than enough to fuel a short-covering rally.
Options traders are also divided when it comes to Fastenal stock, with FAST’s front-month put/call open interest ratio arriving at 0.99 as calls only marginally outnumber puts heading into the company’s earnings report. A closer look reveals that peak call open interest totals 2,380 contracts at the out-of-the-money Nov $46 strike, while peak put open interest numbers 1,989 contracts at the in-the-money Oct $46 strike.
Click to Enlarge From a technical standpoint, Fastenal stock has been quite volatile since the middle of the year. Shares have bounced between support near $44 and resistance near $47, with FAST unable to fill in its July post-earnings gap lower. Currently, the stock is clinging to support in the $44 region, with short-term resistance mounting in near $46, which is home to the stock’s 20-day moving average.
For those looking to get in on a pre-earnings play on Fastenal stock, implieds on the stock’s October options are hinting at a potential post-earnings move of about 4.5%. This places the upper bound near $47.05, while the lower bound lies at $42.95.
Options Trade on Fastenal Stock
Bearish sentiment levied against an underperforming stock is par for the course, and FAST has done little to inspire a shift in analyst opinions. As such, traders looking to position themselves ahead of Friday’s report may want to consider a Nov $43/$45 bear put spread.
At the close of trading on Tuesday, this spread was offered at 98 cents, or $98 per pair of contracts. Breakeven lies at $44.02, while a maximum profit of $1.02, or $102 per pair of contracts, is possible if Fastenal stock closes at or below $43 when November options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
