The solar-panel manufacturer behemoth First Solar (FSLR), which has been flying high in the past three quarters, seems to have hit the brakes with lackluster earnings and revenues in its latest earnings report. Additionally, the weak outlook dampened investor mood following the earnings announcement after the bell on Tuesday.
First Solar Earnings in Focus
The solar giant reported earnings per share of 89 cents, missing the Zacks Consensus Estimate of $1.00 and far below the year-ago earnings of $2.04. Revenues plunged 29% year over year to $768.4 million and fell short of our estimate of $974 million. Lower business project revenue is the prime reason for the big miss.
The thin-film solar PV maker expects earnings per share in the range of 50–60 cents for the first quarter of fiscal 2014. This is well below of the Zacks Consensus Estimate of 75 cents, suggesting that some pain might be in store for the company.
First Solar also guided revenues in the range of $800–$900 million, which is in line with the Zacks Consensus Estimate of $854 million (read: Can Solar ETFs Continue Their Rally in 2014?).
The big miss and discouraging guidance took a toll on FSLR shares, which fell more than 13% in after-market trading, while they saw a nearly double digit decline in Wednesday’s session as well. This is indicative of investor caution on the company’s growth story and calls for locking in some gains at the current level.
Further, First Solar currently has a Zacks Rank #3 (Hold) for the short term, suggesting that the bullish trend might come to a standstill for the time being. However, the long-term outlook seems bright as the stock has a great Zacks Industry Rank (in the top 10%), as per the Zacks Industry Rank.
Many ETFs with heavy exposure to this solar giant enjoyed huge gains last year and in the year-to-date time frame. With First Solar’s disappointing guidance and the large drop in its after-market share prices, this trend is less likely to continue at least in the near term (see: all the Alternative Energy ETFs).
However, many solar and clean energy ETFs have diversified exposure and several companies have seen solid earnings to end the year. Given this, a fund approach may be the best way to play this market for the time being, and we have highlighted three possible choices below:
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)
This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $155.2 million. It charges 60 bps in fees per year while it trades in moderate volume of more than 74,000 shares per day. In total, the product holds 42 securities in its basket. First Solar occupies the fourth spot with 6.65% of assets.
Technology firms dominate this ETF, accounting for over one-third of assets while oil & gas, and industrials round off to the next two spots. QCLN is up nearly 14% so far this year and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘High’ risk outlook (read: Obama's Second Term has been Great for these ETFs).
Market Vectors Solar Energy ETF (KWT)
This fund manages a $26.1 million asset base and provides global exposure to a small basket of 35 solar stocks by tracking the Market Vectors Global Solar Energy Index. Of the components, FSLR occupies the third position in the basket with 6.44% of assets.
In terms of country exposure, U.S. firms take roughly one-third of the portfolio, closely followed by China (19.5%) and Taiwan (17.5%). The product has an expense ratio of 0.66% and sees paltry volume of under 9,000 shares a day. The ETF has added about 19% in the year-to-date time frame.
Guggenheim Solar ETF (TAN)
This ETF follows the MAC Global Solar Energy Index, holding 29 stocks in the basket. Of these firms, FSLR takes the sixth position in the basket with 5.63% allocation. Chinese firms dominate the fund’s portfolio with nearly 37%, closely followed by the U.S. (34.09%) and Hong Kong (10.20%).
The product has amassed $469 million in its asset base and trades in good volumes of nearly 539,000 shares a day. It charges investors 70 bps in fees per year. The fund gained over 26.5% year-to-date and has a Zacks ETF Rank of 2 or ‘Buy’ rating (read: 3 Sector ETFs Surging to Start 2014).
While the short term may not look great for these products, we are optimistic on the long term given the favorable green energy fundamentals and growing popularity of clean energy.
And for those in First Solar, an ETF approach may be the way to go. These funds are more diversified and could hold up better, thus making them interesting picks for those who want to stay long in the clean energy market, but are concerned about single security volatility.
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