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Can Solar ETF Retain its Rally Despite Mixed Earnings?

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The pure play Invesco Solar ETF (TAN - Free Report) has been rallying strongly in the past year. It returned 61.7% in a year’s time and 27.7% this year so far. There has been a growing acceptance of solar energy globally and the cost of construction is declining. Electric car maker Tesla’s solar venture is another positive for this space (read: Beyond Earnings, Is It Tesla That is Energizing Clean ETFs?).

The stupendous upsurge in TAN makes it necessary to examine solar stocks’ earnings this season. Notably, last week was packed with earnings releases from key solar companies. While Enphase Energy Inc.’s (ENPH - Free Report) stellar earnings lifted the overall space, First Solar Inc.’s (FSLR - Free Report) miss marred the optimism slightly at the end of the week.

Another solar stock SolarEdge Technologies Inc. (SEDG - Free Report) was a gainer in the week as an analyst raised his price target by 17% ahead of its fourth-quarter earnings release. In fact, SolarEdge beat on both counts.

Below we highlight the key earnings reports in the space (read: Sector ETFs at the Midpoint in Q1: Hits & Misses).

Inside ENPH Earnings

Enphase Energy reported fourth-quarter 2019 adjusted earnings of 39 cents per share, surpassing the Zacks Consensus Estimate of 33 cents and also jumping a massive 875% year over year. Revenues of $210 million too exceeded the consensus mark of $204.8 million and soared 119.8% on solid shipments as well.

For first-quarter 2020, Enphase Energy expects revenues of $200-$210 million including $44.5 million from ITC safe harbor shipments. The Zacks Consensus Estimate for the same was pegged at $171.7 million, below the company’s guided range.

The stock sports a Zacks Rank #1 (Strong Buy) and hails from a favorable Zacks industry (placed in the top 14% of 250+ industries). The stock has a top Growth and Momentum Score of A.

Inside SEDG Earnings

SolarEdge Technologies reported fourth-quarter 2019 adjusted earnings of $1.65 per share, beaitng the Zacks Consensus Estimate of $1.30 by 26.9%. Moreover, the bottom line skyrocketed 161.9% from 63 cents in the prior-year quarter.

Solar Edge’s revenues of $418.2 million in the reported quarter topped the Zacks Consensus Estimate of $415.3 million by 0.7%. Further, the top line surged 58.6% from the year-ago quarter’s $263.7 million.

For the current quarter, SolarEdge expects to generate revenues within $425-$440 million. The Zacks Consensus Estimate for the same was $358.3 million, lower than the company’s guided range.  

SEDG has a Zacks Rank #2 (Buy) and a Growth Score of A.

Inside FSLR Earnings

On Feb 21, First Solar reported fourth-quarter 2019 adjusted earnings of $2.02 per share, which missed the Zacks Consensus Estimate of $2.79 by 27.6%. Including one-time litigation losses, the company incurred GAAP loss of 56 cents per share against earnings of 50 cents recorded in the prior-year quarter.

Moreover, First Solar’s sales of $1,399.4 million in the reported quarter lagged the Zacks Consensus Estimate of $1,759.7 million by 20.5%. However, the top line improved a substantial 102.4% from the year-ago quarter’s $691.2 million.

The company currently expects to record earnings in the range of $3.25-$3.75 per share on sales of $2.7-$2.9 billion in 2020. The Zacks Consensus Estimate for current-year earnings was pegged at $3.63, above the midpoint of the company’s projected range. The Zacks Consensus Estimate of $3.38 billion for 2020 sales is also above the guided range.

Overall, a downbeat earnings performance hurt FSLR share price by 14.72% on Feb 21. The stock currently has a Zacks Rank #3 (Hold).

Will the Solar ETF Continue to Shine?

The fund should gain further as it invests as much as 11.59% in ENPH followed by 11.02% in SEDG. The laggard of this earnings season -- FSLR -- holds 6.21% of the fund. Since the fund is heavily-weighted on the outperformers and the operating backdrop is in its favor, we can expect the rally in TAN to continue in the coming days.

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