Baird Sheds Light on First Solar, SunPower Stocks

FSLR stock is on track for a nine-day losing streak, despite being named a 'fresh pick'

by Patrick Martin

Published on Jun 11, 2018 at 10:11 AM

Alternative energy stocks are in focus again today, after Baird weighed in on First Solar, Inc. (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR). The brokerage firm is just the latest to opine that the solar sector could face global pricing pressure from unfavorable regulatory developments in China, which sent FSLR and SPWR stocks reeling last week.

First Solar Stock Extends Skid Despite Baird Love

First Solar stock is down 0.5% to trade at $52.42 today, although Baird named the stock its "fresh pick," citing the company's revenue visibility and competitive advantage over peers. The bullish note comes as FSLR stares at a possible nine-day losing streak, and fresh off FSLR's worst week since 2013 -- partly due to a string of analyst downgrades. On Friday, the shares finished below their 320-day moving average for the first time since July, and since a seven-year high of $81.72 on April 27, the equity has given back 36%. 

Despite last week's seemingly incessant analyst backlash, half of the 14 brokerages covering FSLR still rate it a "buy" or "strong buy." Meanwhile, its consensus 12-month price target of $70.93 is a 36% premium to the stock's current perch. 

Still, short-term options traders have been scooping up FSLR contracts at a discount. The equity's Schaeffer's Volatility Index (SVI) of 41% is in just the 23rd percentile of its annual range, suggesting First Solar's near-term options are pricing in relatively low volatility expectations.

SunPower Stock Bounces Despite Downgrade

SunPower stock is up 1.4% to trade at $7.15, even after Baird issued a downgrade to "neutral" from "outperform," while also slashing its price target to $7 from $10. The analyst noted that SunPower could be under pressure if it does not receive an exemption from solar tariffs, and notes that it could faces challenges selling its premium product in an oversupplied environment. SunPower stock has also struggled mightily lately, and is coming off its worst week since August 2017, but is currently on track to snap a five-day losing streak.

In the options pits, there has been a large appetite for calls in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 7.36 ranks in the elevated 74th annual percentile, meaning SunPower calls have been bought to open at a quicker-than-usual clip -- albeit amid relatively low absolute volume.

However, the recent affinity for long calls -- particularly at out-of-the-money strikes -- could be attributable to short sellers seeking an options hedge. Short interest increased by 7% in the most recent reporting period, and the 15.86 million shares sold short represents a whopping 26.6% of SPWR's total available float. 

Whatever the motive, those looking to bet on SPWR stock's short-term price action may want to consider doing so with options. The equity's SVI of 59% ranks in the 16th annual percentile, meaning low volatility expectations are being priced into short-term contracts -- a boon to potential premium buyers.

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