First Solar: Can It Save the Solar Sector? (FSLR, CSIQ, LDK, TSL, TAN, ICLN, PBW, PBD, PZD, KWT)

Earnings from global leader First Solar Inc. (NASDAQ: FSLR) are due tomorrow, and while EPS estimates for the company have fallen from just over $2/share to $0.92/share in the past three months, First Solar remains a top pick in the solar sector. Lowered expectations for the sector are also weighing on the ETFs focused on clean energy.

First Solar is expected to report EPS of $0.92 on revenue of $584 million. Last quarter the company posted EPS of $1.33. Chinese producer Canadian Solar Inc. (NASDAQ: CSIQ) today named a new CFO and also reported that its gross margins for the second quarter would be at the lower end of its outlook. LDK Solar Inc. (NYSE: LDK) and Trina Solar Ltd. (NYSE: TSL) have also recently replaced CFOs as a variety of accounting issues have begun to plague Chinese solar makers.

Solar producers make up a significant portion of the investments in several clean energy ETFs. These funds include the Guggenheim Solar ETF (NYSE: TAN), the iShares S&P Global Clean Energy Index (NYSE: ICLN), the PowerShares WilderHill Clean Energy ETF (NYSE: PBW), the PowerShares Global Clean Energy ETF (NYSE: PBD), the PowerShares Cleantech Portfolio (NYSE: PZD), and the Market Vectors Solar Energy ETF (NYSE: KWT).

The Guggenheim Solar ETF (NYSE: TAN) holds about $150 million in total assets, and First Solar is its largest holding, at more than 19%. Trina and SunPower Corp. account for another 9% of holdings. Year to date the best performers in the fund have been GT Solar International, Inc. and GCL-Poly Energy Holdings Ltd., neither of which makes modules. First Solar has lost more than -4.5% of its value so far this year, while GT Solar is up more than 66% and GCL-Poly is up more than 52%. LDK Solar (-28.36%), Canadian (-22.28%), and Trina (-16.14%) indicate the direction of Chinese solar makers’ shares. So far this year the fund is down -6.3%.

The iShares S&P Global Clean Energy Index (NYSE: ICLN) holds total assets of $67 million, but unlike TAN the fund invests in non-solar as well as solar stocks. The fund’s three largest holdings are First Solar, GT Solar, and Trina. Year to date the fund is off nearly -2%. Nearly a third of the fund’s holdings are in solar-related stocks.

The PowerShares WilderHill Clean Energy ETF (NYSE: PBW) holds total assets of about $415 million. The fund recently replaced First Solar as its top holding with Emcore Corp., a maker of solar cells and concentrating solar PV systems. Like ICLN, this fund is diversified throughout the clean energy sector, but year-to-date results have been poor, down -15.5%.

The PowerShares Global Clean Energy ETF (NYSE: PBD) is an equal weighted fund that holds about $180 million in assets among nearly 100 stocks, none of which accounts for more than 2% of holdings. The fund is down more than -5% so far this year.

The PowerShares Cleantech Portfolio (NYSE: PZD) holds about $148 million in total assets. The fund is styled as a mid-cap growth fund and includes 71 stocks spread across the spectrum of clean energy development. First Solar is the only solar PV maker in its top 20 holdings. Year to date the fund has returned 6.7%.

The Market Vectors Solar Energy ETF (NYSE: KWT) is the newest and smallest of these clean energy funds. Assets total $25 million, and like TAN, the fund is narrowly focused on the solar sector. First Solar is the funds top holding at nearly 11%, followed by GT Solar. Trina and Suntech are among the top 10, which account for 64% of holdings. So far this year the fund is down more than -9%.

The solar sector is currently struggling with excess capacity, shrinking margins, and lower government subsidies. Many of the China-based companies are also plagued with accounting issues, raising questions about the companies’ financial footings.

Even if First Solar reports an outstanding second quarter (not terribly likely), the effect on the sector and on the ETFs that are heavily invested in solar stocks ought to remain muted.

Paul Ausick