This is going to be a banner year for the solar industry, but that doesn't mean solar stocks have had a smooth ride higher. Expectations were high for the industry coming into earnings season, and results have been hit or miss, depending on whom you're following.
Over the past month alone we have everything from a 20% gain for SunPower to a 28% drop for Yingli Green Energy (NYSE: YGE). And that's even before it releases quarterly results.
Broadly, the industry leaders with strong balance sheets continue to do well and those with questionable balance sheets and quality are falling behind. As the industry enters its next phase of expansion, it will be key for investors to stick with companies that can afford to make necessary investments to keep up with new technology and stay flexible downstream to take advantage of high margin opportunities.
With that, here's what happened in solar over the past week.
Earnings season continues
For the most part, solar earnings have been very strong, but many companies set expectations too high and haven't blown past them as many investors expected.
The latest example is Canadian Solar (CSIQ -3.14%), which reported earnings on Friday. First-quarter shipments were 500 MW, revenue $466.3 million, and net income $3.8 million. Compared with a year ago, that's a 47% increase in shipments and a 77% jump in earnings, and it compares with a $4.4 million loss. But the year-over-year improvement is overshadowed by a sequential decline in all three numbers, something investors may not have been ready for.
What's important to keep in mind here is that the fourth quarter is typically an extremely strong one for solar companies as they rush to install projects to ensure a year's tax incentives, and the first quarter is equally weak for the same reason, along with seasonal challenges. But if we take a step back and look at the picture year over year, installations are up 35%. The figures are strong, but expectations just got ahead of actual results.
A similar dynamic played out at Hanwha SolarOne (HQCL), which saw revenue rise 2% in the first quarter to $183.1 million and increased shipments 12% to 323.6 MW. But sequentially, revenue and shipments were down 12.1% and 8.1%, respectively. I would put Hanwha SolarOne on a lower tier than Canadian Solar, so that's why revenue and shipments didn't grow as much as the higher-tier rival, a broad trend we're seeing across the industry.
Yingli Green Energy's Panda panel is expected to fuel growth in the high-efficiency market.
The next big report to watch will be Yingli Green Energy, which is one of the industry's largest suppliers but is also highly in debt. In April, the company said its shipments wouldn't be as high as expected in the first quarter, but on the bright side, margins are up. Guidance will be key for shares after earnings.
This weaker-than-expected guidance is putting pressure on shares, but we know from recent history that solar companies and analysts are pretty bad at predicting results, even one quarter in advance. I watch trends more closely, and on that front, we're seeing solid growth year over year, which should mean strong results in the back half of 2014, especially for top-tier solar companies. Don't panic over a short-term drop in solar stocks, because this is a buying opportunity for an industry headed in the right direction.
News and notes
Here are a few more notable news items from the world of solar over the past week.
- The White House has gone solar ... again. A 6.3 kW solar system was finally completed on the White House late last week after four years of talk and red tape. This is clearly more of a symbolic move than economic, but it's a milestone the industry can point to as important in its history.
- Ikea continues to be one of the largest commercial solar installers in the world, having announced a new 3.6 MW partnership with Canadian Solar to install solar in Australia. As of the middle of 2013, Ikea was the fifth largest commercial solar installer, with 35 MW on its rooftops.
- Sharp Solar, which was the largest solar module maker from 1963 to 2008, finally became the No. 1 module supplier again in the first quarter, with nearly 750 MW shipped. But instead of making panels, it's now using third-party suppliers and branding them as Sharp. It's the foothold in Japan that's allowing this success and suppliers from China and Taiwan that are happy to sell panels to Sharp for the foot into the Japanese market. It'll be interesting to watch if this fab-light business model works long-term.
Check back to fool.com next week for more on the solar market and how you can make it a winning investment.
