The proverbial earnings melting pot will once again be full to the brim next week, with an array of notables slated to confess their quarterly figures. Taking a gander at the calendar, three soon-to-report companies piqued my interest: solar concerns Evergreen Solar, Inc. (ESLR) and Solarfun Power Holdings Co. Ltd. (SOLF), as well as shipping issue Overseas Shipholding Group (OSG).
So, what's in store for the trio? Here at Schaeffer's, we've found that the best way to predict a stock's post-earnings performance is to dissect the equity's fundamental, technical, and – most importantly – sentiment backdrops. That said, let's take a look, shall we?
Evergreen Solar
Fundamental: The East Coast producer of photovoltaic cells is expected to take the earnings spotlight after the closing bell on Monday, Aug. 2. From an historical standpoint, the firm has confessed to a steeper-than-anticipated per-share earnings loss in each of the last four quarters, according to Thomson Reuters.
Technical: It's been a rough road for the shares of ESLR, which have surrendered more than 54% since the start of 2010. In fact, the equity has underperformed the broader S&P 500 Index (SPX) by an abysmal 34% during the past 60 sessions. Now trading south of single-digit territory, the security continues to battle its 10-week and 20-week moving averages, which have contained all but one of ESLR's weekly closes during the past year.
Sentiment: Not one of the 19 analysts covering the equity rates it a "buy," according to Zacks, and more than 14% of the security's float is dedicated to short interest. In fact, at ESLR's average daily trading volume, it would take more than three weeks for all of these pessimistic positions to unwind.
Furthermore, the shares' Schaeffer's put/call open interest ratio (SOIR) of 0.58 ranks in the 75th annual percentile, implying that short-term options traders have been more bearishly biased toward ESLR only one-fourth of the time during the past 12 months.
Verdict: Considering ESLR's earnings history and technical troubles, it's not surprising to find most of the Street wary of the stock. As such, it will likely take more than one solid earnings report to shake loose the majority of these bears – meaning the shares of ESLR could continue to struggle with trendline resistance, even in the wake of a stronger-than-expected report next week.
Solarfun Power Holdings
Fundamental: The China-based solar firm is expected to release its second-quarter figures before the opening bell on Tuesday, Aug. 3. According to Thomson Reuters, the company has been somewhat wishy-washy with the earnings reins, exceeding the Street's per-share profit predictions in two of the past four quarters.
Technical: SOLF has been a broad-market standout lately, outpacing the SPX by an impressive 36% during the past 40 sessions. What's more, the equity is now flirting with new-high territory, attempting to close the month atop the round-number $10 level for the first time since September 2008. However, the stock's Relative Strength Index (RSI) now sits at a lofty 69 – on the cusp of overbought territory.
Sentiment: Despite the stock's year-to-date gain of roughly 33%, there are still some lingering skeptics on the Street. According to Zacks, half of the 12 ranking analysts still consider the security a tepid "hold," while Thomson Reuters pegs the consensus 12-month price target on the stock at only $9 – a discount of 12% to SOLF's closing price of $10.20 on Thursday. Meanwhile, the security's SOIR of 0.32 registers in the 55th annual percentile, pointing to a general complacency among the near-term options crowd.
Verdict: If Solarfun can surpass analysts' earnings expectations next week, the bearish holdouts could capitulate to the bullpen. A fresh wave of upbeat analyst attention in the form of upgrades or price-target boosts could be just what SOLF needs to lure more buyers to its bandwagon.
Overseas Shipholding Group
Fundamental: The Big Apple-based transportation titan will also report its second-quarter earnings before the start of the session on Tuesday, Aug. 3. Historically speaking, the company has bested analysts' expectations in three of the past four quarters.
Technical: Since its most recent rejection at its 80-month moving average in early May, OSG has given up roughly 26%. What's more, the equity is now poised to finish its third straight month south of its 10-month moving average – meaning any post-earnings rallies could be stifled by this trendline. Furthermore, the overhead $45 region could act as an added speed bump for the shares, as OSG has finished only one month atop this neighborhood since September 2008.
Sentiment: The stock's SOIR of 0.98 ranks in the 67th annual percentile, implying that short-term options traders have been more pessimistically positioned toward OSG only about one-third of the time during the past 52 weeks. Elsewhere, short interest on the security advanced by about 15% during the past month, and now represents nearly 16.5% of the stock's total float. In fact, at OSG's average pace of trading, it would take about a week for all of these bearish bets to unwind.
Verdict: Should Overseas Shipholding Group report encouraging second-quarter stats next week, an unwinding of pessimism could be a boon for the shares. More specifically, a reversal in sentiment in the options pits, or a significant short-squeeze situation, could help OSG trim its year-to-date deficit.
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