First Solar Earnings Beat Puts Solar ETFs in Focus

Zacks

The solar power industry has been gaining immense popularity of late thanks to growing demand for photovoltaic cells and incredible share price appreciation. This trend will likely continue with astounding Q3 results from the U.S. solar-panel manufacturer behemoth, First Solar (FSLR), after the bell on Thursday (read: 3 Sector ETFs Crushing the Market in 2013).
 
First Solar Earnings in Focus
 
The solar giant reported earnings per share of $2.28, strongly outpacing the Zacks Consensus Estimate of 92 cents and growing nearly 80% from the year-ago earnings. Revenues climbed 51% year over year to $1.27 billion and surpassed our estimated $961 million.
 
Robust performances were credited to higher module sales to third-party customers, higher business project revenues, and higher manufacturing utilization.
 
The company raised its earnings per share outlook from $3.75–$4.25 to the $4.25–$4.50 range for the fiscal year. This is well ahead of the Zacks Consensus Estimate of $3.74, suggesting optimism in the company’s growth prospects.
 
Though FSLR is expected to beat on the bottom line, revenues growth might create a headwind for the full fiscal year. This is because the company now expects revenues in the range of $3.4–$3.6 billion, down from the previous guidance of $3.6–$3.8 billion and the Zacks Consensus Estimate of $3.632 billion.
 
This outlook might be little disappointing, but investors should note that lower revenues could translate into higher profits if pricing remains attractive. This is particularly true as gross margins are rising. FSLR expects gross margin to grow in the range of 24–26% from 22–23% for the full year.
 
Driven by upbeat results, shares of FSLR rose over 9% during the after-market trade, but closed a little lower with a nearly 7.3% gain (read: Inside the Incredible Surge in Solar ETFs).
 
ETF Angle
 
Many ETFs with heavy exposure to this solar giant are enjoying huge gains as First Solar made an impressive comeback this year. In fact, FSLR share price more than doubled in the the past year and over 63% year-to-date. This suggests that the company is growing and has room for further upside.
 
Below, we have highlighted two solar ETFs having larger allocation to FSLR and will be in focus in the coming weeks as well (read: all the Alternative Energy ETFs):
 
Guggenheim Solar ETF (TAN)
 
This ETF emerged as a strong winner in the global space this year on good volumes of nearly 350,000 shares a day. The fund attracted $203 million in assets so far this year reaching a total base of $357.5 million. It charges investors 70 bps in fees per year.
 
The product tracks the MAC Global Solar Energy Index, holding 31 stocks in the basket. Of these firms, FSLR takes the second spot, making up 6.28% of assets. Chinese firms dominate the fund’s portfolio with nearly 37%, closely followed by U.S. (31.30%) and Hong Kong (12.26%).
 
The fund surged nearly 133% year-to-date and has a Zacks ETF Rank of 2 or ‘Buy’ rating, suggesting that the product would outperform over the next one-year period (read: 3 Biggest ETF Winners from the 3rd Quarter).
 
Market Vectors Solar Energy ETF (KWT)
 
This fund manages a $21.6 million asset base and provides global exposure to a small basket of 33 solar stocks by tracking the Market Vectors Global Solar Energy Index. Here, FSLR occupies the third position in the basket with 7.27% of assets.
 
In terms of country exposure, U.S. firms take roughly one-third of the portfolio, closely followed by China (26.5%) and Taiwan (18.6%). The product has an expense ratio of 0.66% and sees paltry volume of under 5,000 shares a day.
 
The ETF added over 98% in the year-to-date time frame.
 
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