Alternative energy concern FuelCell Energy Inc. (FCEL) is scheduled to enter the earnings confessional after the close of trading tomorrow night, and judging from the stock's sentiment backdrop, investors aren't expecting much. For the record, Wall Street is expecting the company to post a loss of 23 cents per share, a figure that is down sharply from last year's breakeven results. Historically, FuelCell's results have been largely inline with expectations, topping the consensus estimate twice, matching once, and missing once, with an average upside surprise of nearly 3%.
Options traders appear to have set the bar pretty low for FCEL's quarterly report, as the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.58 arrives higher than 84% of all such readings taken during the past year. What's more, this ratio is beginning to trend higher as the company's day in the earnings limelight draws nearer, rising from a reading of 0.52, in the 66th percentile, on Feb. 22. This rise in FCEL's SOIR indicates that puts are being added at a faster rate than calls among near-term options, pointing toward growing bearish sentiment among these speculative investors.
Outside the options pits, short sellers are also loading up on bearish bets. In fact, short interest has spiked nearly 45% since October 2009. As a result, nearly 8 million FCEL shares are now sold short, accounting for a hefty 11% of the stock's total float. Furthermore, at the security's average daily trading volume, it would take more than 13 days for investors to repurchase these bearish bets. This sizable short position could work in FCEL's favor. Should the company's earnings report receive a warm welcome, these short sellers could be forced into buying back their positions in order to limit losses, creating the potential for a short-squeeze situation.
Wall Street, meanwhile, is leaning toward the bullish camp when it comes to FCEL. Specifically, the equity has earned seven "buys," one "hold," and one "sell." Meanwhile, Thomson Reuters reports that the 12-month consensus price target for the stock rests at $5.50 per share - a 90% premium to the stock's closing price of $2.87 on Monday. Should FCEL fail to impress the brokerage bunch with its quarterly figures, there is plenty of room for these analysts to express their displeasure via downgrades or price-target cuts.
Technically speaking, FCEL has earned its bad reputation among investors honestly. The shares have been locked in a long-term downtrend since peaking at $54.38 in October 2000. More recently, the stock has logged a year-to-date decline of more than 23%, and has struggled with resistance at its falling 10-month and 20-month moving averages since December 2007. The equity is currently trading below resistance at the 3 level, with support emerging in the 2.50 area.
The bottom line is that FCEL has a chance to change its fortunes with Wednesday's quarterly earnings report. If the company can surpass Wall Street's consensus estimate and provide reasonable guidance, there is a very good chance that investors will be forced to rethink their bearish positions. What's more, any positive surprises from FCEL could provide the spark necessary to propel the shares sharply higher. Otherwise, another ho-hum earnings report could result in the shares eventually drifting lower to retest their March low near $2 per share.
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