Will ReneSola Survive the Shakeout in Solar?

On Thursday, ReneSola (SOL 4.97%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

The solar industry has been going through a major upheaval lately, and as a small Chinese solar company, ReneSola has been right in the middle of it. With failures starting to emerge among the numerous Chinese players in the solar market, investors are questioning which companies will survive. Let's take an early look at what's been happening with ReneSola over the past quarter and what we're likely to see in its quarterly report.

Stats on ReneSola

Source: Yahoo! Finance.

How will ReneSola's earnings fare this quarter?
Analysts have actually gotten somewhat more optimistic about ReneSola's earnings in recent months, having cut their loss estimates for the first quarter by $0.06 per share and narrowed their full-year 2013 loss expectations by nearly triple that amount. The stock languished for much of the past three months but rebounded in the past week to recover all its lost ground and post a modest 2% gain since early February.

The state of the Chinese solar industry has grown increasingly dire recently, as Suntech Power defaulted on its bonds rather than receive an anticipated bailout from the Chinese government. LDK Solar (NYSE: LDK) has also faced big problems, having "partially defaulted" on bonds last month and negotiating a settlement with many of the bondholders. Yet although ReneSola has similar debt challenges, it was able to secure a $51 million loan from the China Development Bank, giving it more breathing room to try to work its way out of its financial troubles.

Moreover, ReneSola has had some successes lately. Back in April, the company announced it had won a 1.8-megawatt project in New Mexico and had agreed to a 44-megawatt module arrangement with Enerparc. Then just last week, the company said that it had supplied solar modules for three community projects in Vermont. That may seem like peanuts next to the success that First Solar (FSLR 2.43%) has had in selling hundreds of megawatts of generation capacity to major utility producers, and admittedly, those large projects have been primarily responsible for First Solar's superior profitability. Yet while ReneSola's Vermont projects only added up to 335 kilowatts, they nevertheless represent the scale needed to serve small local communities, and tapping into the trend toward green energy could represent a business opportunity for ReneSola.

Nevertheless, the main problem for ReneSola is that it still hasn't managed even to get gross profit margins above zero. JA Solar (NASDAQ: JASO) has been in the same boat recently, with the costs of making its products exceeding its sales even before considering operating expenses and other costs of doing business. Unless ReneSola can get its margins up, then it won't be able to compete against much better performing U.S. rivals that have seen their prospects soar lately.

In ReneSola's quarterly report, watch for any signs that the company is getting its revenue up and its costs down. A failure to do so in the near future could endanger the company's survival in the not-too-distant future.

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