Trina Solar Limited Earnings: Will Geopolitics Eclipse Growth?

Trina Solar (NYSE: TSL  ) will release its quarterly report on Tuesday, and investors have stayed optimistic about the future prospects for the Chinese solar manufacturer recently as demand for residential solar panels in the U.S. and elsewhere starts to rise. Yet even though JinkoSolar (NYSE: JKS  ) announced profitable results Monday, the question is whether Trina, Jinko, and Yingli Green Energy (NYSE: YGE  ) can fare as well as U.S.-based solar companies have done recently, especially with SolarCity having opened the door to potentially revolutionary technology that could transform the entire industry.

For years, Trina, Yingli, Jinko, and other Chinese solar manufacturers have struggled to try to reach profitability in a highly competitive market. As some of Trina's weaker competitors have started to fall by the wayside, though, the survivors are finally starting to get some pricing power and seeing the benefits of higher global demand for solar modules. Yet the big question remains whether the upturn in solar interest will continue, especially given the still-high level of subsidies that are driving new areas of demand like residential solar. Let's take an early look at what's been happening with Trina Solar over the past quarter and what we're likely to see in its report.


Source: Trina Solar.

Stats on Trina Solar

Analyst EPS Estimate

($0.02)

Year-Ago EPS

($1.23)

Revenue Estimate

$543.47 million

Change From Year-Ago Revenue

80%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Which way are Trina Solar earnings headed?
In recent months, analysts have had mixed but mostly positive views on Trina earnings, lowering their initial expectations for a breakeven fourth quarter but boosting their full-year 2014 projections by almost half. The stock has only climbed by about 1% since late November, even though it had soared sevenfold in the preceding year.

Trina came into the quarter on its strongest note in years, with the company joining JinkoSolar and Canadian Solar (NASDAQ: CSIQ  ) by reporting modest profits. Module shipments jumped to 775 megawatts, up 19% from the third quarter, and Trina raised its guidance for future shipments by 200 megawatts. With relatively modest levels of net debt compared to its peers, Trina has been less hampered by the threat of insolvency than many Chinese solar stocks.

Moreover, China itself continues to play a vital role in Trina's growth. The nation likely installed a record amount of solar-energy capacity in 2013, and with high levels of activity projected to continue, Trina stands to get its fair share of domestic demand to help drive its profitability.

Yet an unpredictable factor in Trina's future could come from trade regulation. Calls for new U.S. tariffs on imports of Chinese solar products could make it uneconomical for Trina and its peers to sell to the U.S. market. Trina doesn't get as much of its revenue from the U.S. as Yingli does, but at 19% of total panel volume, Trina's shipments across the Pacific play a vital role in its overall financial health, especially as SolarCity's efforts raise demand generally for solar panels. Moreover, ongoing uncertainty in the European market also poses long-term issues for Trina to overcome.

Still, Trina is moving forward aggressively to grow. Last month, the company said it had taken a majority stake in Hubei Hongyuan, a subsidiary of Shenzhen S.C. New Energy. The move should raise Trina's overall production capacity by between 15% and 20%, putting it in even better position to capitalize from strong demand.

In the Trina Solar earnings report, watch to see if the company can defy expectations and pull another profitable quarter out of its hat. In the long run, Trina needs to become solidly and consistently profitable in order to convince shareholders that its recovery can last -- and to defend itself against geopolitical tension that could turn into outright trade wars at some point in the future.

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