Canadian Solar shares surge following Q4 beat

Canadian Solar shares gained 15% on a Q4 earnings beat, on the heels of similar results for Sunrun and First Solar. The latter’s shares have gained 40% year-to-date as the IRA provides a boon to its business. Despite this, US solar installations slowed during 2022, while the European market accelerated.

• Canadian Solar shares close up 15% following earnings beat.
• Solar installation rates slowing in US, accelerating in Europe.
• Invesco Solar ETF down 3% year-to-date.

Canadian Solar’s [CSIQ] shares closed up 15% on Tuesday after it posted fourth quarter (Q4) earnings, with EPS beating analyst estimates by 46.1%.

The results, announced before markets opened on Tuesday, had partly been priced in following preliminary results announced on 24 February. Nevertheless, net income announced this week exceeded the February forecast. Canadian Solar shares are up 33.5% year-to-date and up 10% in the past month.

Back in February, Sunrun [RUN] smashed Refinitiv analyst earnings expectations by 680%. First Solar [FSLR] reported an earnings and revenue beat after markets closed on 28 February.

Sunrun’s share price closed 20 March down 20.8% year-to-date and down 21% down over the past month.

First Solar’s share price is up 39.7% year-to-date, and up 28% in the past month alone, particularly since having closed up 15.7% the day after its February results.

Positive guidance lights up First Solar shares

Canadian Solar’s results confirmed a 29% year-over-year increase in revenue to $1.97bn, 2.1% ahead of the consensus among analysts polled by Refinitiv. Net income of $78m, or $1.11 per share, exceeded the “approximately $70m” the preliminary release had anticipated, and exceeded analyst estimates by 46.1%.

Sunrun’s Q4 results also defied expectations. While analysts yielded a consensus loss of $0.05 per share, the company delivered a profit of $0.29 per share. Reported revenue of $609.2m exceeded by 3.6% the $588.1m analysts had expected.

For the full year 2022, Sunrun’s EPS of $0.80 exceeded analyst expectations of $0.43 by 86%, and revenue of $2.32bn beat analyst expectations by 0.9%.

While analysts had expected First Solar to post quarterly losses, they were narrower than expected, coming in at $0.07 per share versus negative $0.16 per share. Revenue of $1bn was 1.1% over the $989.4m that analysts had expected. Full-year revenue of $2.62bn was in line with analyst expectations, while losses of $0.41 for the period missed analyst Refinitiv analyst expectations of a $0.05 loss per share.

Positive guidance posted by First Solar is likely responsible for its subsequent share price rally. Expected revenue for 2023 at $3.4bn to $3.6bn was slightly above market expectations of $3.36bn, even at the midpoint.

UBS analyst Jon Windham upgraded First Solar to ‘buy’ from ‘neutral’, and increased his price target to $250 from $140. Windam’s note called First Solar “the most significant beneficiary of the Inflation Reduction Act (IRA)”.

European leaders chase the sun

Steve Cohen, chairman and CEO of global asset management firm Point72, more than doubled his stake in Sunrun shares during Q4, with his holdings in the stock now worth $38m.

The billionaire investor has been also loading up on SolarEdge Technologies [SEDG], which likewise delivered an earnings beat in February. The Israeli company reported 137% year-over-year growth in Europe, a key growth market for the solar industry.

The rate of new solar power installation in Europe increased 47% during 2022, according to data from SolarPower Europe. The European Commission’s Net Zero Industry Act, announced 16 March, should boost domestic solar production by aiming to source 40% of all European clean energy from local suppliers.

The growth of the market in Europe contrasts with an unprecedented slowing of the rate of solar installation in the US during 2022, with a 9 March report from Wood Mackenzie and the Solar Energy Industries Association attributing the deceleration to “policy-driven supply constraints”. The IRA is expected to help installations rebound this year, however.

Funds in focus: Invesco Solar ETF

Investors expecting the solar industry to deliver returns this year can select the Invesco Solar ETF [TAN]. First Solar is the fund’s top holding with a 10.30% weighting as of Monday, and SolarEdge is its third-largest, with 8.99% of assets under management. Sunrun is the sixth-largest holding with a 4.20% weighting, while Canadian Solar has a 2.60% weighting.

TAN is up 1.6% year-to-date, and flat over the past month.

For a more diversified clean energy position, investors can select the SPDR® S&P Kensho Clean Power ETF [CNRG]. First Solar is the fund’s top holding as of 20 March, with a 3.63% weighting, while Canadian Solar is the fourth largest, with a 2.93% weighting. SolarEdge accounts for 2.40% of the fund, while Sunrun has a weighting of 1.63%.

CNRG is up 2.9% year-to-date, but down 1.7% in the past month.