Upstart electric automaker Tesla Motors Inc (TSLA) will step into the earnings showroom after the close of trading Wednesday, and expectations for the company’s third-quarter report have been on the decline.
Tesla has been struggling a bit during the past several weeks, with expenses rising faster than expected and a production shutdown reducing inventory expectations. As a result, the third-quarter earnings picture for TSLA stock has grown increasingly bearish.
When Tesla released its second-quarter results three months ago, Wall Street on average was forecasting a third-quarter profit of 30 cents per share on revenue of $996.28 million. Those figures have dropped significantly, with the consensus now expecting flat earnings on revenue of $889.28 million. What’s more, EarningsWhisper.com reports that the third-quarter whisper number for Tesla is a loss of 2 cents per share.
The situation is tenuous within the brokerage community, as long-term expectations remain elevated. Specifically, data from Thomson/First Call indicate that TSLA stock has attracted 11 “buys,” five “holds” and one “sell” rating. Additionally, the 12-month price target of $300 per share represents a 24% premium to yesterday’s close at $242.59. A worse-than-expected report could prompt a shift in this group’s lingering bullish stance.
Elsewhere, short sellers are betting heavily against Tesla stock. Currently, some 22.8 million shares of TSLA are sold short, representing a hefty 23.9% of the stock’s total float, or shares available for public trading. While this could be a boon for TSLA stock, creating potential for a short-squeeze situation, the company will have to offer a sufficiently positive third-quarter report before these shorts budge from their positions.
Judging from recent options activity on Tesla stock, these short sellers are not all that worried about a post-earnings rally. November put/call open interest ratio for TSLA arrives at a bearish reading of 1.31, with puts easily outnumbering calls among options set to expire by the end of the month. Zeroing in on weekly November options, the put/call open interest ratio rises a bit, but still holds at a bearishly skewed 1.20 for options set to expire at the end of the week.
The most popular puts include the out-of-the-money Nov $190 strike with 6,171 contracts, the Nov $200 strike with 5,662 contracts and the Nov $195 strike with 4,248 contracts. On the call side, the Nov $272.50, $260, $280 and $285 strikes all sport open interest of more than 2,000 contracts.
Click to Enlarge Overall, weekly November implieds for TSLA stock are pricing in a potential post-earnings move of nearly 9%. This places the upper bound near $264, while the lower bound lies near $220. Such a move in either direction would be technically significant for Tesla stock, as an upside move would boost the shares north of their 50-day moving average, while a decline would breach key support at TSLA’s 200-day trendline.
With the bar for Tesla’s quarterly report set extremely low, the company’s long-term outlook remaining relatively solid, and the shares in the process of rebounding from their 200-day trendline, I’m inclined to take a contrarian stance on TSLA heading into tomorrow’s quarterly report.
2 Options Trades on TSLA Stock
Bull Call Spreads: Traders looking to buck the sentiment stance on Wall Street might want to consider a Nov $242.50/$252.50 bull call spread. At last check, this spread was offered at $4.60, or $460 per pair of contracts. Breakeven lies at $247.10, while a maximum profit of $5.40, or $540 per pair of contracts, is possible if TSLA stock closes at or above $252.50 when November options expire.
Selling Puts: Alternately, if you’re not willing to make an all-out bullish bet on Tesla stock ahead of earnings, you could look into selling puts. Along those lines, selling weekly Nov $200 puts might be a way to capitalize on TSLA’s technical support. At last check, the Nov $200 put was bid at $1, or $100 per contract. The upside to this put sell strategy is that you keep the premium as long as Tesla stock closes above $200 when November options expire. The downside is that should TSLA trade below $200 ahead of expiration, you could be assigned 100 shares for each Nov $200 put sold at a cost of $200 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.