It’s been a rough year for solar power concern First Solar, Inc. (NASDAQ:FSLR). FSLR stock is down more than 44% from its March peak, with the company’s bottom line plagued by cheap oil and slowing global economic growth.
While the latter may continue to be an issue for the foreseeable future, plenty of evidence suggests a boom in oil could be just around the corner. With First Solar in a leadership position within the alternative energy camp, the growth potential for FSLR stock is significant.
We could get a peek at that growth potential soon when First Solar enters the earnings confessional Nov. 2. Wall Street is looking for a profit of 74 cents per share on revenue of $985.82 million.
Both figures are down sharply year-over-year, and few on the Street are expecting any surprises for the current quarter — although EarningsWhispers.com reports a whisper number of 83 cents per share.
As long as First Solar’s third-quarter results arrive in line with expectations, guidance should be the main driver for FSLR stock following the event. In addition to the potential for rising oil prices, First Solar is looking at a potential alternative energy advocate taking the White House in next month’s election should HIllary Clinton win. Additionally, solar power recently eclipsed coal globally in terms of electricity generation.
“About half a million solar panels were installed every day around the world last year,” the International Energy Agency said in a recent report on renewable energy.
Still, there are plenty of sentiment hurdles for First Solar to over come if the stock is going to win back the hearts of Wall Street investors.
FSLR Stock Has to Show and Prove
For instance, the brokerage community remains largely on the sidelines. According to data from Zacks, 11 of the 20 analysts following FSLR stock rate the shares a “hold” or worse; and the 12-month price target of $51.25 represents a premium of about 26% to Tuesday’s close. Considering the valuations for the rest of the alternative energy market, there is room for improvement here as long as First Solar meets expectations and provides positive guidance.
Bearish sentiment is also prevalent among short sellers. As of the most recent reporting period, 14.5 million shares of FSLR stock were sold short, comprising a hefty 21%% of the stock’s total float. While short interest is understandable considering FLSR’s troubles in 2016, it could provide a wellspring of buying power if the stock’s budding uptrend gains momentum.
Click to Enlarge Judging by FSLR stock’s near-term open interest configuration, short sellers may be getting a bit nervous.
Typically, short sellers will purchase calls ahead of an unknown event in order to hedge their positions — and they are looking at two before November options expire on the 18th.
Currently, the November put/call open interest ratio arrives at 0.7, with call open interest easily outnumbering put open interest among near-term options. Furthermore, this ratio falls sharply to 0.5 in the weekly Nov. 4 series.
Overall, weekly Nov. 4 series implieds are pricing in a potential post-earnings move of about 8.4% for FSLR stock. This places the upper bound at $43.92, while the lower bound lies at $37.08.
A rally would push FSLR stock toward a potential confrontation with resistance in the $44 to $45 region (with a Clinton win potentially vaulting the shares past this hurdle), while a decline would put FSLR below all short-term trendline support, potentially leading to a test of support near $35 in the next several weeks.
2 Trades for FSLR Stock
Call Spread: With sentiment largely bearish, and FLSR stock only beginning to show signs of rebounding, a long position here is quite speculative. But, if earnings and/or the U.S. presidential election gow First Solar’s way, the potential influx of sideline money could make a bullish play quite profitable.
Those traders looking to bet against the grain might want to consider a Nov $42.50/$45 bull call spread. At last check, this spread was offered at 73 cents, or $73 per pair of contracts. Breakeven lies at $43.23, while a maximum profit of $1.77, or $177 per pair of contracts, is possible if FLSR stock closes at or above $45 when November options expire.
Put Sell: If you’re not sure about FSLR’s potential upside, or feel that the stock may stagnate following next week’s report, then a weekly Nov. 4 series $35 put sell may be what you are looking for. At last check, this put was bid at 24 cents, or $24 per contract.
The upside to this put sell strategy is that you keep the premium as long as FSLR stock closes above $35 when Nov. 4 options expire at the end of next week. The downside is that should FSLR trade below $35 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $35 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
