Tuesday, October 14, 2008

Solar: Earnings Heads Up (ESLR; SPWRA)

On August 22 we said:
Earnings season is winding down and if past patterns hold, attention will drift away from the sector. Next week SOLF reports on the 27th and ENER wraps it up on the 28th.
Little did we know...
The day before, First Solar closed at $282.82, ENER at $79.38, Sunpower at $96.59. Yesterday, after an average 18% pop, the closing prices were: $143.97, $44.82 and $52.00!

During last quarter's reporting season we pointed out the failure of the stocks to react to strong growth, raised guidance or both:
July 18
"Evergreen Solar Q2 In Line, But Shrs Fall On Light Outlook (ESLR) "
"A trend is emerging."
(That was after only two reports, we were pleased with our perspicacity)
July 28
"First Solar to Beat and Raise, Market Yawns (FSLR)"
...Remember that we have seen three reports* that were followed by downticks and believe it is the new trend in solar. "Evergreen Solar Q2 In Line, But Shrs Fall On Light Outlook (ESLR)"

ESLR- in line
MEMC- swing and a miss.
All three down. As grandmother used to say "Secular bear markets aren't just about declines [although they can be doozies], they're also about multiple contraction."

"Grandma, what's a doozie?"
Anyhoo. Sunpower leads of the earnings season, reporting before the market on Thursday. The pattern last quarter was for a moderate run-up in the stocks prior to the release and then a tumble. This time around... hell who knows (but I'm leaning toward more staying power as the prices are so much lower), we expect earnings to exceed expectations on most issues (except WFR). Here's a five day chart (from BigCharts) with the 20-day simple moving average:

Evergreen Solar reports after the close on Thursday and that's it for this week. Here's ESLR: