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What's in Store for First Solar (FSLR) This Earnings Season?

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First Solar, Inc. FSLR is set to report second-quarter 2016 earnings results after the closing bell on Aug 3, 2016. Last quarter, the company delivered a positive earnings surprise of 82.42%. Let's see how things are shaping up for this announcement.

FIRST SOLAR INC Price and EPS Surprise


Factors at Play

During the first-quarter earnings call, the company revealed that earnings are expected to be slightly less than 50% in the first half of 2016 although it is subject to the timing of when certain project sales close.

The company also stated that it is in a transitional phase and will see more module only type and module plus type of revenues in the second quarter. The company anticipated a slight drop in earnings associated with  the transition.

According to company filings, First Solar expects to derive a major portion of its 2016 revenue through the sale of its utility-scale projects in North America. Currently, these projects are categorized as advanced stage projects. The company is expected to recognize the majority of its revenue from its advanced stage projects in the second half of 2016.

Despite the weak outlook, First Solar exited 2015 with record booking. Its pipeline outside the U.S. appears robust with nearly 90% of its mid-to-late stage opportunities coming from abroad. Also, the ITC extension will provide U.S. projects with healthy margins given its major exposure in North America.

Like other solar majors, SunPower Corp. (SPWR - Free Report) and Vivint Solar Inc. VSLR, the booming U.S. solar market is expected to drive top-line growth at First Solar.

As per the Zacks Consensus Estimate, the company is expected to notch up revenues of $904.4 million in the second quarter. This is almost a 1% increase on a year-over-year basis, and about 7% higher than the previous quarter. Earnings are pegged at 57 cents, reflecting 10.6% year-over-year expected growth.

Earnings Whispers?

Our proven model does not conclusively show that First Solar will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: This is because the Most Accurate estimate is pegged at 38 cents while the Zacks Consensus Estimate is poised at 57 cents. This translates to an ESP of -33.33% for First Solar.

Zacks Rank: First Solar’s Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Unlike First Solar we see a likely earnings beat coming from this industry peer.

Vivint Solar Inc. has an earnings ESP of +1.79% and a Zacks Rank #3. The company is expected to report second-quarter 2016 results on Aug 8.

Another Release

Sunrun Inc. RUN is slated to report second-quarter 2016 results on Aug 11, 2016.

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