It’s another busy earnings week with lots of reports to choose from. One report that should generate some options trading interest, though it’s hardly a major revenue producer, is First Solar (NASDAQ: FSLR). The solar energy company reports on Tuesday after the close with analysts expecting a sharp 42% drop in per-share profits from a year ago.
FSLR has no problem beating analysts’ projections. In fact, the company has never missed an estimate throughout its short public life (back to late 2006). So beating the number isn’t really the issue. It’s what the stock does after reporting. And it isn’t pretty, judging from recent quarters.
During the past three quarters, the stock has dropped an average of more than 7% in just the one day following earnings. And that weakness has continued, with the shares more than 10% lower two weeks after reporting. That’s a less than encouraging sign.
On the charts, the shares have been treading water for the past couple of weeks, unable to pop above the stubborn 200-day moving average. Also looming large as resistance is the 140 level, which turned the stock away in November and December.
Sentiment toward FSLR is largely negative, hardly a surprise for an industry that has yet to gain a firm foothold in the energy space. In addition, the company has gone through some shuffling of senior management, which always introduces some uncertainty. Yes, short interest is high and could yield to a short squeeze. But it’s been high for awhile. And while the analyst configuration is a skeptical 18 “buys,” 13 “holds,” and six “sells,” there’s room for both upgrades and downgrades.
FSLR is a volatile stock after earnings. Given its recent history, technical resistance, and softer fundamentals, we’re betting that the path of least resistance is down. FSLR options aren’t cheap. We prefer the risk/reward ratio of the in-the-money FSLR May 140 Put for around eight bucks. If that’s a little rich, you can go with the FSLR May 135 Put for between $5.00 and $6.00. Both should do well if FSLR follows its recent post-earnings price history.
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