First Solar Call Options Recommended by Jefferies Ahead of Earnings Report

Investors should buy bullish First Solar Inc. options because the world’s largest maker of thin- film solar power modules may beat analysts’ estimates when it reports earnings tomorrow, Jefferies Group Inc. said.

Derivatives strategists at New York-based Jefferies recommended buying August $140 calls while selling August $160 calls, a strategy known as a spread that cuts the cost of the trade while capping potential profit. The shares climbed 0.2 percent to $137.04 as of 4 p.m. in New York.

Jefferies equity analyst Jesse Pichel “suspects Street expectations are for a second-quarter beat and modest guide up tomorrow,” the strategists wrote in a note today. Investors should use the trade “to get some upside exposure in the name and take advantage of the seemingly underappreciated potential for a big move on earnings.”

First Solar, which will release second-quarter earnings on July 29 after the close of markets in New York, is rated “hold” by Pichel. He has a $138 12-month share-price forecast and expects second-quarter earnings excluding some costs will be $1.29, below the average estimate of $1.62 according to a Bloomberg survey of 31 analysts.

First Solar, based in Tempe, Arizona, fell earlier this month after German lawmakers on July 9 backed reductions in solar-power subsidies of as much as 16 percent. The shares rebounded 6.3 percent from July 16 to today.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

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