Thanks to oil’s recent surge, a number of tangentially connected industries have benefited from the sharp move higher in crude prices. One such industry is the solar power sector where higher oil prices make solar panels more competitive with traditional fuel sources. Furthermore, during times of great turmoil, many are also reminded of the importance of weaning ourselves off foreign oil and diversifying our energy sources into alternatives, adding to the investment interest in the sector. With this backdrop, one of the most important firms in the industry, First Solar (FSLR) reported earnings last night after the bell, putting the in-focus industry further into the spotlight. First Solar, a Tempe, Arizona-based company, is the world’s largest manufacturer of thin film photovoltaic modules with operations stretching from its home in the U.S. to Europe and the Far East as well. The company has been ramping up production as of late and it has been exploiting its manufacturing prowess to drive the costs of solar power down significantly over the past few years. As a result, many analysts had high expectations for the firm, especially given the rosy report from competitor Trina Solar earlier in the day. However, the company delivered a mixed report which could lead to a choppy session for solar companies in Friday trading [see Solar ETFs Shining Bright To Start 2011].
The company reported a 10% surge in net income to $155.9 million, or $1.80 a share, from $141.6 million, or $1.65, a year earlier. This compared favorably to analyst estimates which called for earnings of $1.76 a share but sales fell by 4.9% to $609.8 million and the company lowered its sales forecast for the year, news that sent shares of the titan plunging in after-hours trading last night. The company saw its shares sink by more than 3.8% as traders sold off shares in the company in light of a $100 million reduction in sales forecasts due to weakness in Europe, a major market for the company. “They still have a lot of exposure in Europe in 2011 and we’re all waiting to see how the policy unfolds,” said Wedbush analyst Christine Hersey, who has an “underperform” rating on First Solar’s stock. “They are a little more cautious on pricing in the open market at this point.”
Due to this key report and oil’s recent rise above the $95 mark, we look for the Guggenheim Solar ETF (TAN) to be today’s ETF to watch. By far the top holding in the fund is FSLR, which makes up just over 21% of the total assets, although another 33 companies are also represented in the fund as well. The fund has soared higher to start 2011, gaining 19% since the beginning of the year, however, it has slumped in recent sessions, falling by almost 2.5%. While it seems likely that TAN will start the day on a down note, some of the other more U.S.-centric companies in the fund may be able to avoid much of the downturn and post stronger days which could help buoy the Guggenheim fund in the final day of trading this week. Either way, look for TAN to be in for a choppy, heavy volume session today as investors react to this important report from FSLR as well as any further news from the Middle East [see The Definitive Guide To Clean Energy ETFs].
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Disclosure: No positions at time of writing.