3 Solar Stocks That Could Get Burnt by Earnings

Solar stocks Canadian Solar Inc. (CSIQ), SunPower Corporation (SPWR), and Trina Solar Limited (ADR) (TSL) have been getting iced

May 5, 2016 at 12:01 PM
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While shares of SolarCity Corp (NASDAQ:SCTY) are attempting to recover from yesterday's Chanos-induced fall, the solar power sector as a whole has been struggling of late. In fact, when Schaeffer's Senior Quantitative Analyst Rocky White created a scorecard to rank each sector, alternative energy landed at the very bottom, with the 12 stocks included averaging an ugly year-over-year loss of 40.1%. The Guggenheim Solar ETF (TAN) reflects this underperformance, too, sitting on a loss of nearly 26% year-to-date. With many earnings reports still ahead in the sector, it will be interesting to see where solar stocks go from here. Below we'll take the temperature of three solar stocks that have been feeling the heat so far this year: Canadian Solar Inc. (NASDAQ:CSIQ), SunPower Corporation (NASDAQ:SPWR), and Trina Solar Limited (ADR) (NYSE:TSL).

CSIQ is off 43% in 2016, last seen up 0.8% at $16.50, but analysts remain wildly optimistic, with all nine maintaining "strong buy" ratings on the stock. In fact, the average 12-month price target of $30.24 sits in territory the shares haven't explored since last June. The equity could be in even more trouble if its first-quarter earnings report -- due next Wednesday morning -- yields disappointing results.

An unwinding of optimism from the options pits
could create pressure, as well. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than three CSIQ calls for each put over the last two weeks. The resulting 10-day call/put volume ratio of 3.23 ranks higher than 74% of the past year's readings. Echoing this is Canadian Solar Inc.'s Schaeffer's put/call open interest ratio (SOIR) of 0.39 -- lower than 96% of all readings in the past 12 months -- indicating near-term traders have been especially call-heavy of late.

SPWR is gearing up to report quarterly earnings after today's close, and the shares are off 1.5% at $17.63 so far today -- hitting a fresh two-year low of $17.51 earlier -- bringing their year-to-date loss to 41.3%. The equity could be headed for even more lows if earnings don't impress, as 12 out of 14 analysts currently maintain a "buy" or better rating, without a single "sell" on the books.

Traders seem skeptical, however, with nearly one-fourth of SPWR's available float wrapped up in short interest -- accounting for more than seven sessions of trading, at the stock's average daily volume. And in the options pits, SunPower Corporation's 10-day put/call volume ratio of 1.10 on the ISE, CBOE, and PHLX sits higher than three-fourths of all comparable readings in the last year. Options action is heating up ahead of tonight's earnings report, and puts are in the lead, with more than 6,300 contracts traded so far, compared to 2,400 calls.

TSL is trading 0.3% lower at $9.02 today, down 18% in 2016 after being rejected by its 50-day moving average last week. Analysts are mostly optimistic, with two-thirds rating the stock a "strong buy," and short sellers have been backing off lately -- though short interest is still elevated, accounting for nearly seven days' worth of trading, at TSL's typical pace.

Near-term traders may be eyeing more upside for TSL, as the stock's SOIR of 0.56 indicates calls nearly double puts among options expiring in three months or less. Moreover, this ratio sits lower than 78% of the past year's readings. Meanwhile, Trina Solar Limited's near-term options are attractively priced, from a volatility perspective, as its Schaeffer's Volatility Index (SVI) of 46% is seated in the low 19th percentile of its annual range.

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