Why is the sun dimming for solar power stocks?

By Chris Lau for Kapitall.

Bullishness for solar power peaked this past March, after firms reported strong demand and forecast an even brighter future. Since then, stock prices for many solar plays waned. Last week, SunPower ( SPWR) confirmed weakness ahead in the solar energy sector. The firm provided guidance at ranges lower than market expectation.

SunPower quarter misses expectations

SunPower earned $0.28 per share in the second quarter. Revenue was $621.1 million, down nearly 5 percent from last year and missing consensus. Looking ahead to 2017, the firm expects its new plant will boost capacity by over 50 percent. The added supply could be negative for the industry as a whole. Before this year, the sector was working off excess supply. Demand finally met supply levels, and this stabilized solar energy prices.

Light forecast

For Q3, SunPower expects revenue will be in the range of $600 million – $650 million on earnings of $0.15 – $0.35 per share. Analysts expected earnings would be at least $0.29 per share. For 2014, the firm expects to sell up to 1.3 GW of solar product. OF the 8.4 GW in its pipeline, 3 GW is from the Americas.

Related investments

First Solar ( FSLR) and Trina Solar ( TSL) also fell in the month of July. Shares of all companies are all up close to the 50 percent level over a one year period.

Confidence is much higher for First Solar and Sun Power. Each has a forward P/E of 28 and 32, respectively. By contrast, Trina’s forward P/E is just 13. Trina was hurt by the U.S. import duties. The U.S. government is set to impose anti-dumping tariffs as high as 165%. In the medium term, Trina will get hurt, though its tariff rate in June and July as 29.3 percent. Needless to say, First Solar and SunPower will benefit as foreign firms face these tariffs.

Downside ahead

The light is not dimming for solar power stocks. But they are falling out of favor with short-term investors again. Investors should expect the downside momentum will pressure stocks lower. This does not mean the outlook for these companies are worsening. If anything, the lower prices take the froth off of these plays, and create a buying opportunity for investors who missed earlier rallies.

 

Click on the interactive chart to view data over time. 

 

1. First Solar, Inc. ( FSLR): First Solar, Inc. manufactures and sells solar modules using a thin-film semiconductor technology. Market cap at $5.7B, most recent closing price at $57.75.

 

 

2. SunPower Corporation ( SPWR): SunPower Corporation, an energy services company, designs, manufactures, and delivers solar systems to residential, commercial, and utility customers. Market cap at $4.19B, most recent closing price at $34.50.

 

 

3. Trina Solar Limited ( TSL): Designs, develops, manufactures, and sells photovoltaic (PV) modules worldwide. Market cap at $1.07B, most recent closing price at $15.06.

 

 

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

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