(NASDAQ: FSLR) - If there’s one thing options traders love, it’s movement. And few stocks move more after earnings than FSLR. In fact, the shares have gained or lost an average of 14% in just the one day following earnings. You can just see options traders drool.FSLR reports Thursday, 7/29 after the close. Analysts expect a 24% decrease in profits from a year ago. Given that the company has beaten every such estimate in its short public history, we don’t see any reason why they should miss this time around.
The question is not whether FSLR will move next week. It’s the direction. Based on the current sentiment line-up, we’re betting that it’s up. The sector is starting to mature as solar becomes increasingly commoditized. That means higher demand, more efficiency and lower prices, all of which should help FSLR’s bottom line and guidance moving forward.
The stock appears poised to make an assault on its April high above the 150 level. Next week’s earnings could be the catalyst FSLR needs to make that happen.
Fluor
(NYSE: FLR) - As the largest publicly traded U.S. construction company FLR needs a lot of fuel to keep it moving. Call it “feeding the whale.” Unfortunately, the major food source — the U.S. economy — is still sputtering, as we were reminded by Ben Bernanke last week.FLR reports after the close on Monday. While analysts expect a 22% drop in earnings from last year, we must note that the company has missed two of the past three estimates. And the stock has done poorly after three of the past four such reports.
Adding to the pressure is optimistic sentiment in the form of a falling put/call ratio, low short interest and a 70% “buy” rating from analysts. That tells us that FLR must not only beat the consensus earnings estimate but also issue guidance that puts a positive spin on a sour economy.
On the charts, the stock has been declining in a series of lower highs since late April and is staring up at its 50-day moving average. With weak technicals, questionable fundamentals and optimism on the Street, we expect FLR to struggle to meet high expectations. That translates into price weakness on Tuesday.
Legg Mason
(NYSE: LM) – Asset management firm LM reports fiscal Q1 (2011) earnings after the close on Monday, 7/26. Analysts expect a modest decline of around 13% in profits from a year ago. After struggling to meet estimates through the heights of the financial crisis, the company appears to have righted itself by beating the Street in four of the past five quarters.The stock has tended to move sharply after recent earnings reports. For instance, the shares popped more than 11% in just the day after last quarter’s news. The stock is currently bouncing off another successful test of support near the 27 mark. This area has provided a solid foundation several times over the past year.
The main reason we like LM is the low expectations heading into earnings. Beyond the expected profit decline, options players have been heavily into puts, pushing the put/call ratio to an annual high. And analysts are aligned against LM, with just six of 16 rating the stock a “buy.” That tells us that simply meeting the earnings estimate and providing decent guidance should be plenty to attract some doubters and set off a wave of buying.
DuPont (NYSE: DD) – Chemical titan DD is set to announce their quarterly earnings results on July 27 before the market open. The company has maintained a positive trend of earnings surprises, though the margin by which the company has beaten expectations has slimmed lately. To make things tougher, we’ve seen a surge of optimism, as three of the eight analysts having an EPS target on DD have raised their expectations over the past seven trading days.The options pits have seen an increase in bullish bets on DD ahead of earnings, specifically on the August 36 call. That tells us that earnings-related buying is likely priced into the shares, increasing the odds that we’ll see a “sell the rumor” reaction to earnings next week. At these prices, we think the long-term bulls will have an opportunity to buy DD closer to its recent lows of $34 over the next month.
Express Scripts
(NASDAQ: ESRX) – OK, those readers who have followed us for a long time know that it pains us to have a bearish outlook on ESRX given that it’s provided our Winning Edgesubscribers with several profitable call trades. But the writing appears to be on the wall ahead of its earnings announcement on Thursday next week.The “writing” that we refer to is the bullish expectations that are priced into current prices. For example, the current whisper estimate on ESRX’s earnings next week is $0.69 per share. Compare that with the current analyst expectation of $0.59. The 17% “whisper premium” means that the “crowd” is going to be hard to please next week. This, of course, indicates that the stock has a much higher chance of failing, unless the earnings report really blows the doors off analyst expectations. That’s a hard… and unlikely… trick to pull off in this environment.
Eldorado Gold
(NYSE: EGO) – EGO hit the market with an EPS beat of more than 40% last quarter, shooting the stock higher. With the gold bug having bit the market, we believe the fundamental picture is still intact for gold miners such as EGO, at least over the short term. Recent selling pressure has pushed the stock down to potential support at the 16 level. The 20-week moving average is also in play in this area, telling us that the stock is currently at an attractive entry point heading into earnings.
A combination of support from EGO’s technical and sentiment indicators, monitored by our proprietary models, indicates that the stock has become oversold ahead of next week’s earnings announcement. Add in lowered earnings expectations, and the stock is in a position to rally, even on earnings results that might otherwise seem less than expected.
In other words, investors are more likely to be surprised by better-than-expected earnings than a disappointing report. We like these scenarios ahead of the earnings report, which is why EGO has landed on our bullish earnings radar.
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