2 Solar Stocks on Our Radar Ahead of Earnings

Alternative energy stocks are seriously underpeforming, while short interest levels are elevated

Feb 13, 2017 at 10:56 AM
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The Guggenheim Solar ETF (TAN) has been on our radar in recent weeks, as it represents a sector that has been notably underperforming. In fact, of the 36 sectors we track with our internal Sector Scorecard, "Energy Other" has looked particularly dismal, with just one of nine stocks seated above its 80-day moving average, as of last Wednesday. The average stock within the sector also holds the worst year-over-year return, at negative 20.5%. And TAN is pretty well in line, with the exchange-traded fund dropping 17% over the last 12 months. The sector has also seen short interest accumulate, with these bearish bets representing an average of seven sessions' worth of buying power on component stocks. This week, we're watching shares of Solaredge Technologies Inc (NASDAQ:SEDG) and SunPower Corporation (NASDAQ:SPWR), as the two firms are due to report earnings over the next few days.

Pre-Earnings Pessimism Runs Deep Toward Solaredge 

After Tuesday's close, SEDG will report quarterly results for the eighth time since the stock began trading publicly. So far, the solar stock's history of post-earnings moves has been mixed. The shares have moved lower in the session after reporting four times, and averaged a move of 12.7% in either direction following the last seven earnings releases. Options traders are currently pricing in an even wider one-day swing of 18% for Wednesday.

It looks like speculators are largely betting on another downside move, as well. Though options volume tends to run light on an absolute basis, SEDG's 10-week put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at a top-heavy 7.14 -- just 5 percentage points from an annual high. Likewise, the stock's Schaeffer's put/call open interest ratio (SOIR) ranks in the high 85th percentile of its 12-month range, at 4.37.

Pessimism toward SEDG doesn't stop with options traders, though. At the moment, over 52% of the equity's total float is wrapped up in short interest. At SEDG's typical pace of trading, it would take more than three weeks for short sellers to cover all these positions. Oddly, analysts don't seem to be on the same page. Of 11 firms providing coverage, seven rate Solaredge Technologies Inc (NASDAQ:SEDG) a "buy" or better, and not one calls it a "sell." The stock is currently down 49% year-over-year at $13.45, slumping under pressure from its 100-day moving average.

SunPower Call Buyers May Have Ulterior Motives

SPWR is also gearing up for earnings, due after the close on Wednesday. And like its peer above, the stock has seen mixed post-earnings moves. Over the past eight quarters, the shares have moved higher in the session after reporting four times. SPWR has averaged a single-day swing of 7.9% the day after earnings, but options traders are betting on an even sharper 18.1% move this time around.

There are signs of optimism toward SPWR in the options pits. The stock has seen more than five calls purchased for each put at the ISE, CBOE, and PHLX over the past 50 days, albeit amid light absolute volume. The resulting call/put volume ratio of 5.26 ranks higher than 98% of all readings in the past year.

Still, short sellers have been targeting the solar stock, with nearly 32% of SPWR's available float dedicated to these pessimistic positions -- 7.4 sessions' worth of purchasing power, at the equity's typical daily volume. This elevated short-interest ratio suggests some recent call buyers -- especially at out-of-the-money strikes -- may be SPWR short sellers looking for an upside hedge.

Meanwhile, the brokerage bunch appears lukewarm toward SunPower Corporation (NASDAQ:SPWR). At the moment, roughly 82% of tracking analysts rate the shares a tepid "hold" -- though the average 12-month price target of $11.17 sits at a hefty premium over current levels. SPWR has been sliding down the charts since mid-2014, and struggling with resistance from its declining 80-day moving average for more than a year. At $7.09, the share are off 70% on an annual basis.

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