First Solar Rally May Signal Worst Is Over

NEW YORK (TheStreet) -- Shares of First Solar (FSLR) rallied strongly on Tuesday, suggesting to some that the solar sector is at or near a bottom. First Solar was one of the biggest S&P 500 gainers on a bullish Tuesday, rising close to 7%.

One market trigger for the First Solar rise was a note from Jefferies -- which tends to the bullish side of the securities industry divide on solar. The firm lowered its second-quarter estimate for First Solar's earnings and said it sees risk to the company's full-year guidance.

On the surface, this seems like a negative but Jefferies' estimate for earnings of $11.06 a share from First Solar in 2012 is well above the current average analysts' view of $10.68 a share. In addition, the firm's new forecast for earnings of $15 per share from First Solar in 2013 was described by other solar analysts as aggressive.

In making the short-term negative call on First Solar, while maintaining a positive stance on the solar bellwether's earnings power in future years, Jefferies also noted that the solar industry should reach rock bottom by August.

This argument could hold as much sway with investors as any specific earnings forecast, as solar stocks have been beaten up this year and tend to swing to extremes. When sentiment is entirely negative on solar stocks is often the moment investors begin considering an entry point.

One problem for investors, though, is that while Jefferies lowered its earnings forecast for First Solar this year, solar companies by and large have yet to revise full-year guidance. So far there have only been niche examples of guidance revisions in solar, including Germany's Conergy, solar materials firm STR Holdings (STRI), and China Sunergy (CSUN).

On Tuesday PV Crystalox, a U.K.-based solar wafer maker joined the chorus. Its shares plunged more than 40% in London trading after a weak profit outlook stemming from the inventory glut in solar and the rapid decline in wafer market pricing.

Even though the reasons behind each of these guidance revisions relates directly to market conditions that impact all the solar companies, with only these niche examples it's hard for investors to know whether the risk of guidance revisions across solar is already fully priced into shares.

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