Following an abysmal start to 2008, solar stocks are once again taking the market by storm. Arguably one of the biggest players in the solar sector, First Solar (NASDAQ: FSLR, Bullboard) is helping to lead the charge. Aside from soaring crude-oil prices near $119 per barrel, FSLR has benefited from a wealth of positive brokerage firm comments.
Last week, Broadpoint reported that FSLR has signed a deal for a 7.5-megawatt (MW) project with Southern California Edison. The deal includes an option to increase the size to 21 MW. What's more, Broadpoint cited this project as tangible evidence of FSLR's entrance into the US utility market. The brokerage firm also reiterated the stock with a "buy" rating and boosted its price target to $315 per share from $270 per share.
Following on the heels of several earnings reports in the solar sector from companies such as Cypress Semiconductor (NYSE: CY, Bullboard), Evergreen Solar (NASDAQ: ESLR, Bullboard), and Sunpower (NASDAQ: SPWR, Bullboard), First Solar is slated to release its own quarterly figures after the market close on Wednesday, April 30. The company is expected to report a profit of 48 cents per share – an impressive rise over last year's profit of seven cents per share. Given that FSLR has bested expectations in each of the past four reporting periods by an average of 159%, another solid report here could serve to further the equity's upside potential.
Technically speaking, last week's rally following the Broadpoint comments pushed FSLR into positive territory for the year. The equity has staged an impressive comeback from its mid-January lows, rebounding from support at its 40-week moving average and pulling its 10-week and 20-week trendlines into a bullish cross. This technical formation often portends additional gains for the equity. Currently, FSLR is trading near all-time high territory, and is staging below psychologically significant technical resistance at the 300 level. This region could provide trouble for the shares until the company's quarterly report, but solid figures from First Solar on April 30 could quickly put this region in the rearview mirror.
Despite FSLR's strong technical performance, options players have become increasingly negative on the equity. The security's Schaeffer's put/call open interest ratio (SOIR) has risen 8% since April 8 to today's reading of 1.33. The stock has not been optionable long enough for an annual percentage ranking, but the rising pessimism amid FSLR's positive price action has bullish contrarian implications.
Digging a bit deeper into this options backdrop, peak call open interest of nearly 2,400 contracts resides at the 300 strike in the May series of options. Meanwhile, peak put open interest of 1,500 contracts resides at the deep-out-of-the-money 200 strike for the month.
Like options players, short sellers have taken a pessimistic view of FSLR. During the most recent reporting period, the number of FSLR shares sold short rose by 3.5% to account for roughly 4.6% of the stock's total float. If the equity can break out above potential technical resistance at the 300 level, these naysayers could be forced to repurchase their bearish bets, adding to the buying pressure on FSLR.
Meanwhile, there is some risk of downgrades from Wall Street. According to Zacks.com, 12 of the 16 analysts following the security rate it a "buy" or better. However, given the stock's 337% rally during the past 52 weeks, such a shift in sentiment from the brokerage bunch seems unlikely.
Barring any negative fallout from the company's forward-looking statement, FSLR is positioned well from a contrarian perspective. There is ample sideline money available to help continue the equity's uptrend, and a potential move above 300 could be the catalyst that prompts these bears to finally jump ship.
by Joseph Hargett, SchaeffersResearch.com
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