Today's column includes a quarterly earnings disappointment from Century Aluminum Company (CENX), speculation on a potential strategic shift for SLM Corporation (SLM), a price-target boost for First Solar, Inc. (FSLR), and a delay in the U.S. production of the Prius for Toyota Motor Corporation (TM). Each day, Early Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.
Century Aluminum Company
After Tuesday's closing bell, Century Aluminum Company (CENX) reported a second-quarter profit of $5.1 million, or 5 cents per share, up from its year-ago loss of $107.1 million, or $1.45 per share. Sales for the quarter climbed 52% to $287.9 million. The results fell woefully short of analysts' expectations, which called for a profit of 25 cents per share on $292 million in revenue.
CENX also stated that it's in the process of securing financing and power supply contracts for its Helguvik smelter project in Iceland. "Final negotiations on amendments to our Helguvik power supply contracts will be a primary factor in determining the timing of the restart of major construction and engineering activity," explained CEO Logan Kruger.
CENX is down 4.4% in pre-market trading, deepening its year-to-date decline of nearly 35%. The stock recently tackled resistance at its 10-week moving average, but its 20-week trendline still looms overhead.
Options traders seemed prepared for a lackluster quarterly report, judging by a recent preference for puts. During the past 10 days, CENX has racked up an International Securities Exchange (ISE) put/call volume ratio of 0.77, which ranks higher than 78% of other such readings taken during the past year. In other words, traders have purchased puts over calls at a faster clip only 22% of the time.
SLM Corporation
Student lender SLM Corporation (SLM), more informally known as Sallie Mae, has reportedly hired Goldman Sachs to advise on a potential breakup of the company. The New York Post says that Sallie Mae is considering the potential sale or spin-off of its student loan business, as well as its government-subsidized loan portfolio. According to the newspaper, SLM is also considering a conversion into a more traditional bank.
SLM is up 4.7% ahead of the bell, rebounding from tenuous support at its 50-week moving average. This trendline has contained all but two of the stock's weekly closes since mid-July 2009.
However, options players seem less than enthusiastic about SLM's prospects. The equity's Schaeffer's put/call open interest ratio (SOIR) weighs in at 0.78, in the 90th annual percentile. This elevated percentile rank reveals that short-term speculators have been more pessimistically aligned only 10% of the time during the previous year.
First Solar, Inc.
First Solar, Inc. (FSLR) garnered a hefty price-target boost this morning. Auriga USA reiterated its "buy" rating on the shares, and simultaneously hiked its price target from $138 to $173. The new target implies expected upside of about 27% to Tuesday's close. This bullish note precedes FSLR's second-quarter earnings report, which is due to hit the Street on Thursday evening, July 29.
FSLR is up 1.3% in electronic trading, with the stock set to continue a short-term rally along the support of its 10-day and 20-day moving averages. This trendline duo has guided FSLR higher since mid-June, but round-number support from the $140 region has recently slowed the security's progress.
The stock's front-month open interest configuration indicates that traders are expecting the stock to break out above this short-term barrier. Peak call open interest of 7,711 contracts can be found at the August 150 strike, which is out of the money by more than 10 points. However, with 23% of FSLR's float sold short, it's possible that some of those overhead calls were purchased as hedges.
Toyota Motor Corporation
Toyota Motor Corporation (TM) is delaying plans to begin manufacturing its Prius hybrid in the U.S., according to Reuters. The Japanese automaker previously outlined plans to begin cranking out the Prius at its new Mississippi facility, but that move has now been delayed by as much as six years, when the fourth-generation Prius will be ready to make its debut.
"The main components for the Prius such as the motor and battery are not mature enough for local production," explained Executive Vice President Atsushi Niimi. "We expect that they'll be ready with the next remodeling." In the meantime, TM's Corolla sedan will be produced at the Mississippi plant.
TM has inched fractionally higher ahead of the open. The stock is attempting to regain a foothold above the round-number $70 region, as well as troublesome resistance from its 50-day moving average. This trendline is currently lingering near the $71.50 area.
Meanwhile, front-month options traders are banking on a short-term slide. The most popular strike in the August series is the out-of-the-money August 65 put, with 1,605 contracts in residence.
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