Gains Still Ahead for Solar ETFs despite Mixed Q2 Earnings - ETF News And Commentary


With the start of August and the winding up of the Q2 earnings season, all eyes are currently on the solar energy space and the movement of solar stocks. Some solar companies have already reported this month while others are yet to report in the coming days (read: Healthcare ETFs Leading the Pack This Q2 Earnings ).

A few industry primes including SunPower ( SPWR ), First Solar ( FSLR ), SunEdison ( SUNE ) and SolarCity ( SCTY ) have released their Q2 results. Though sluggish numbers from SunPower pushed the stock down, earnings from SUNE and a narrower-than-expected loss at SCTY were particularly encouraging, spreading optimism in the broad sector. In addition, First Solar put up an impressive performance despite the earnings and revenue miss.

SunEdison Earnings in Focus

Before the opening bell on Thursday, the solar panel maker surprised the market by reporting better-than-expected earnings of 12 cents per share. This is far above the Zacks Consensus Estimate of a loss of 36 cents and the year-ago loss of 19 cents. Revenue rose 13% year over year to $557.5 million but missed our estimate of $604 million.

SunEdison provided a solid outlook for the ongoing quarter and the full year. It expects solar energy systems sales volume in the range of 70 MW to 80 MW for Q3 and 290 MW to 320 MW for 2014. Further, the company is expected to maintain solar energy system assets in the range of 200 MW to 230 MW and 710 MW to 830 MW, respectively, and complete production of 270 MW to 310 MW in the quarter and 1,000 MW to 1,500 MW in the full year.

The earnings beat and the positive outlook sent the shares of SUNE soaring in yesterday's trading. The stock climbed as much as 16% on the day and closed at up 11.75%.  

Solar City Earnings in Focus

Though the adjusted loss per share sharply widened to 96 cents from 43 cents in the year-ago quarter, it was better than the Zacks Consensus Estimate of a loss of $1.00 on unprecedented demand. Revenues climbed 61.7% year over year to $61.3 million, slightly above our estimate of $61 million (read: Solar ETFs Shine on Trina Solar Earnings Beat ).

The company installed 107 megawatts (MW) of solar panels during the quarter, bolstered by an 1111% year-over-year increase in residential demand. It expects to install 135-150 MW of new solar panels in the third quarter and 500-550 MW for the full year. However, the largest U.S. residential solar installer projects adjusted loss per share of $1.10 to $1.20 for the ongoing quarter, much wider than the Zacks Consensus Estimate of a loss of $1.05

Based on the earnings and revenue beat, the shares of SCTY rose as much as 5.7% in after-hours trading but closed slightly lower with 3.08% gains.

First Solar Earnings in Focus

The largest U.S. solar manufacturer reported earnings per share of 4 cents, badly missing the Zacks Consensus Estimate of 33 cents and plunging nearly 89% from the year-ago earnings. Revenues grew 4.7% year over year to $544.4 million but fell short of our estimate of $789 million on project delays.

As the project delays in Q2 will likely result in deferred revenue and earnings later this year, First Solar reiterated its full year earnings guidance of $2.40-$2.80. The midpoint, however, is well below the Zacks Consensus Estimate of $2.68.

Despite the earnings miss, the shares of this thin-film solar PV maker rose 7.1% in the last two trading days following the earnings announcement after the closing bell on August 5. Investors did not take the miss seriously as the project delays that hurt results are not expected to be a long-term financial overhang for the company (read: What is Behind the Recent Clean Energy ETF Surge? ).

SunPower Earnings in Focus

Earnings per share came in at 22 cents, missing the Zacks Consensus Estimate by a nickel and declining 48% from the year-ago quarter. Revenues of $621.1 million outpaced our estimate of $602 million but declined 4.4% year over year.

The second-largest U.S. solar manufacturer provided a bleak outlook for the third quarter. It expects revenues and earnings per share of $600-650 million and 15-35 cents, the midpoints of which are well below the Zacks Consensus Estimate of $601 million and 23 cents, respectively. Further, the company reiterated its earnings per share guidance of $1.10-$1.40 on revenues of $2.50-2.65 billion for 2014. The Zacks Consensus Estimate for earnings and revenues are $1.15 and $2.58 billion, respectively.

Given the earnings miss and the disappointing outlook, the stock tumbled as much as 9% on the next day after the earnings announcement on July 31 after the closing bell and is currently down 7.1% over the past five trading days.

ETF Angle

The run-up in stock prices of SUNE, SCTY and FSLR led to smooth trading in the solar energy ETFs this week, suggesting that investors rethink on this space. For the interested investors, we have highlighted two solar energy ETFs that are in focus in the coming days.

These could be excellent picks, especially if the solid earnings trend and performance are sustained by the rest of the industry players (see: all the Alternative Energy ETFs here ).

Guggenheim Solar ETF ( TAN )

This ETF follows the MAC Global Solar Energy Index, holding 30 stocks in the basket. SolarCity, SunEdison and First Solar are the top three holdings with a combined 25.7% share while SunPower takes the seventh spot at 4.7%. American firms dominate the fund's portfolio with nearly 42.3%, followed by China (28.3%) and Hong Kong (14.2%).

The product has amassed $403.1 million in its asset base and trades in solid volume of nearly 518,000 shares a day. It charges investors 70 bps in fees per year. The fund gained about 2.7% over the past five trading sessions and has a Zacks ETF Rank of 3 or 'Hold' rating with High risk outlook.

Market Vectors Solar Energy ETF ( KWT )

This fund manages a $23.4 million asset base and provides global exposure to a small basket of 34 solar stocks by tracking the Market Vectors Global Solar Energy Index. Here also, SCTY, SUNE and FSLR occupy the top three positions with a combined 28% share while SPWR takes the eight position in the basket with 5% allocation (read: Solar Import Duties Put These Clean Energy ETFs in Focus ).

In terms of country exposure, the U.S. takes more than one-third of the portfolio, closely followed by China (33.2%) and Taiwan (14.5%). The product has an expense ratio of 0.66% and sees paltry volume of about 7,000 shares a day. The ETF added 1.9% over the past five trading days.

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GUGG-SOLAR (TAN): ETF Research Reports

MKT VEC SOLAR (KWT): ETF Research Reports

SUNPOWER CORP-A (SPWR): Free Stock Analysis Report

FIRST SOLAR INC (FSLR): Free Stock Analysis Report

SOLARCITY CORP (SCTY): Free Stock Analysis Report

SUNEDISON INC (SUNE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Earnings , ETFs

Referenced Stocks: TAN , KWT , SPWR , FSLR , SCTY

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