First Solar Inc. (NASDAQ: FSLR) reports fourth quarter and full-year earnings after markets close today, and investors are pushing the share price up in advance of the company’s report. Given that most solar PV makers have absolutely pounded expectations so far this earnings season, the high hopes for First Solar are probably not misplaced. Shares are also within striking distance of a year-high.

Regardless of its earnings report, most investors will be looking at its outlook for the coming quarter and full-year. Thomson Reuters’ most recent expectation calls for full-year EPS of $9.10 on revenue of $3.76 billion, substantially more than 2010 full-year expectations for EPS of $7.63 on revenue of $2.6 billion.

SunPower Corp. (NASDAQ: SPWRA) posted solid earnings, but its guidance was weak. Trina Solar Ltd. (NYSE: TSL) hammered expectations and offered a positive outlook for the coming year. Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) also posted strong results for the fourth quarter and the full year, and then said it expected an increase of 60% in module shipments in 2011. JA Solar Holdings Co., Ltd. (NASDAQ: JASO) also posted strong results, but disappointed on margins and outlook.

First Solar’s strength is its ability to deliver the lowest-cost-per-kilowatt modules in sufficient quantity to meet demand. The company’s low-cost leadership is attributable to its thin-film technology which requires no silicon wafer in manufacturing. The company also has a substantial project pipeline as a result of its acquisition of NextLight Renewable Power in April 2010.

Expectations for the solar PV makers have improved over the past few months because the cuts to Germany’s subsidies turned out to be smaller than expected and demand from the US, India, Canada, and China appears to have risen enough to make up for the cutbacks in Germany and Italy. The issue the solar PV makers face is falling margins.

As more manufacturing capacity comes on-line, solar makers could get caught in a race to the bottom, squeezing margins to eyelash proportions. If gross margins start to fall much below 20%, there could be some serious trouble in store for the solar makers.

For now though, most solar investors are happy. Analysts have been raising ratings for many solar PV makers to, or holding them at, ‘buy’. An exception is JA Solar, which both Stifel Nicolaus recently cut from ‘hold’ to ‘sell’ and Collins Stuart cut from ‘buy’ to ‘hold’, though Auriga recently lifted JA Solar from ‘hold’ to ‘buy’.

An odd thing among the ratings is the discontent with First Solar. Auriga cut it from ‘buy’ to ‘hold’, as did Kaufman Brothers, while Wunderlich reiterated a ‘sell’ rating on the stock, while raising the target price from $90 to $125. The median target price on First Solar is $165. The company’s trailing P/E ratio is high, at 22.30, and its forward P/E is 18.46. None of the other solar PV makers are in the same ballpark, although Canadian Solar Inc. (NASDAQ: CSIQ) carries a trailing P/E of 74.18, most likely due to its presence in Ontario, where local content requirements for solar modules and a very generous incentive program could spell good times ahead.

First Solar shares are up around 3% this morning above $168.00 and against a 52-week trading range of $98.71 to $175.45. The Guggenheim Solar ETF (NYSE: TAN) is up about 2% as well.  Here is a chart from StockCharts.com for First Solar shares to see the recent gains:

Paul Ausick

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