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Solar ETFs Lose Their Shine on Weak Earnings

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Solar stocks have been victims of investors’ shift from the high beta space and vicious oil trading given their misconception that oil price and solar market fundamentals are directly related to each other. Even encouraging industry trends including higher panel installations, the historic Paris climate deal, the U.S. tax credit extension, and Obama’s Climate Action Plan failed to revive growth in the sector.

Further, weak earnings reports from the three industry primes – First Solar (FSLR - Free Report) , SunPower (SPWR - Free Report) and SolarCity – dampened investors’ mood pushing the stocks further down. While First Solar beat our earnings estimate, the other two behemoths missed. On the revenue front, First Solar missed while the other two surpassed expectations. Additionally, the disappointing guidance from SolarCity washed out all the positive sentiment from the sector (read: Is the Future Clouded for Solar ETFs?).

Let’s dig into their earnings in detail below:

First Solar Earnings in Focus

The largest U.S. solar manufacturer reported mixed Q1 results topping our earnings estimate and lagging the top line. Earnings per share of $1.66 strongly beat the Zacks Consensus Estimate of 91 cents and were well ahead of the year-ago earnings of $1.60. Revenues climbed 80.8% year over year to $848.5 million but fell short of our estimate of $990 million.

For the full year, the company reiterated its revenue outlook in the range of $3.8–$4.0 billion but raised the upper end of the earnings per share range to $4.10–$4.50 from $4.00–$4.50. The Zacks Consensus Estimate is currently pegged at $3.93 billion for revenue and $4.32 for earnings per share. Despite the earnings beat, shares of this thin-film solar PV maker have plunged 18.4% to date post the earnings announcement on April 27 after the market close.

SunPower Earnings in Focus

The second-largest U.S. solar manufacturer posted a loss of 42 cents per share, wider than the Zacks Consensus Estimate of a loss of 23 cents. In the year-ago quarter, the company had reported earnings of 5 cents per share. Revenues inched up 0.7% year over year to $433.6 million, outpacing our estimate of $325 million.

SunPower expects revenues in the range of $310–$360 million for the second quarter and $3.20–$3.40 billion for the full year. The current Zacks Consensus Estimate is pegged at $341 million and $3.24 billion for the second quarter and full year, respectively. The stock shed 2.2% since its earnings announcement on May 5 after the market close.

SolarCity Earnings in Focus

After the closing bell yesterday, SolarCity reported wider-than-expected loss for the first quarter and cut its outlook for solar panel installations this year that has sent its shares tumbling more than 20% in aftermarket hours (see: all the Alternative Energy ETFs here).

Loss per share came in at $2.56, much wider than the Zacks Consensus Estimate of a loss of $2.30 while revenues increased 82% year over year to $123 million, beating our estimate of $105 million. The largest U.S. residential solar installer made a third-highest quarterly record with 214 megawatts (MW) of solar panels installments, up 40% year over year.

It now expects 185 MW of panel installation for the second quarter, down 2% from the year-ago quarter and 1.0-1.1 GW for the full year, down from the previous guidance of 1.25 GW. Further, the company projects adjusted loss per share of $2.70 to $2.80 for the ongoing quarter, much wider than the current Zacks Consensus Estimate of a loss of $2.10.

ETFs in Focus

The downbeat results led to rough trading in the solar ETFs over the past 10 days. This trend might not continue in the days ahead given that the solar industry has a solid Zacks Rank in the top 21% at the time of writing. Additionally, the in-focus three stocks have a Zacks Rank #3 (Hold), suggesting room for some upside after a wild ride.  

Below we detail the two solar ETFs and their exposure to the three firms:

Guggenheim Solar ETF (TAN - Free Report)

This ETF follows the MAC Global Solar Energy Index, holding 25 stocks in the basket. First Solar, SolarCity and SunPower are among the top 10 holdings accounting for a combined 16.9% share. American firms dominate the fund’s portfolio with nearly 38.2% share, closely followed by China (36.9%). The product has amassed $231.1 million in its asset base and trades in solid volume of around 183,000 shares a day. It charges investors 70 bps in fees per year. The fund has lost 9.6% over the past 10 days and has a Zacks ETF Rank of 3 (read: Top and Flop Zones of Q1 and Their ETFs).
Market Vectors Solar Energy ETF (KWT - Free Report)

This fund manages $13.6 million in its asset base and provides global exposure to 28 solar stocks by tracking the MVIS Global Solar Energy Index. Here again, SCTY, FSLR and SPWR are among the top 10 holdings that collectively make up for 20.3% share. China and U.S. account for the top two countries with 32.9% and 23.9% allocation, respectively, closely followed by Taiwan (17.5%). The product has an expense ratio of 0.65% and sees paltry volume of under 2,000 shares a day. The ETF has lost 9.4% over the past 10 days.

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