SolarCity and First Solar Make a Smart Pair Trade

It seems like the bankruptcy of SunEdison (SUNE) has rocked the entire solar sector and many of the big names of the solar industry have underperformed the market since SunEdison went under. Solar industry has always been regarded as an unsafe and risky, and with the likes of SolarCity (SCTY) and First Solar (FSLR) reporting terrible earnings, investors’ skepticism has grown further.

SolarCity is probably the worst stock in the entire solar industry and its underperformance wasn’t surprising at all.
While my recent trading calls on SolarCity have resulted in over 70% profits in just over a few weeks, I did not expect First Solar to pullback as much as it did. Following the company’s earnings release, shares of First Solar have plunged over 10%. Moreover, First Solar is down about 30% from its 52-time high levels. While I find the downfall astounding, I think it has opened a great opportunity for long-term investors.

For me, First Solar is the best stock in the industry, which is why I think the recent pullback is a massive opportunity. Shares of First Solar plunged after the company reported its Q1 earnings and missed on revenue estimates by a wide margin.

First Solar reported EPS of $1.66, way ahead of the consensus of $0.93 per share. In addition, the company’s sales also grew over 80% on a year over year basis to $848 million. Despite the stunning revenue growth, First Solar missed the analysts’ estimates on revenue by $118 million.

However, the revenue miss wasn’t as bad as the market is making it out to be. First Solar’s guidance for the full year is still the same, whereas the company also revised the bottom-end of its earnings guidance. First Solar now expects 2016 EPS of $4.10-$4.50 as opposed to the earlier guidance of $4.00-$4.50. Analysts are still expecting the company to post EPS of $4.30 for current fiscal year which falls comfortably in the guidance range.

On the revenue front, First Solar still expects 2016 revenue of $3.8 billion to $4 billion, and the consensus of $3.96 billion is at the high end of its guidance range.

First Solar’s reaffirmed revenue guidance shows that the revenue miss was a one-time thing which was primarily caused by “the timing of systems revenue recognition across multiple projects, partially offset by higher revenue from the Desert Stateline project."

First Solar will likely make up for this miss in the upcoming quarter, which is why I think the recent pullback will be short-lived and is a great opportunity for investors to buy the stock.

Published on May 31, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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