ReneSola (SOL) Grapples With Unfavorable Industry Dynamics

On Dec 5, we issued an updated research report ReneSola Ltd. (NYSE:SOL) . The company is struggling to survive the cyclical nature of the solar industry and market volatility. However, its monetization efforts could offset the negatives to some extent.

Recently, ReneSola reported a loss of 20 cents per American Depositary Share (“ADS”) in the third quarter of 2016, wider than the Zacks Consensus Estimate of a loss of 16 cents. However, the company had reported earnings of 8 cents in the year-ago quarter. ReneSola’s third-quarter net revenue of $187 million missed the Zacks Consensus Estimate of $201 million by 7%.

Solar industry trends and market volatility, along with unfavorable changes in supply or demand for solar power products throughout the value chain, could pose threats to the company. Additionally, pricing pressure for ReneSola’s products will have an adverse impact on its business and operational results.

Further, a significant portion of ReneSola’s top line is denominated in foreign currencies. As the company expands its manufacturing operations and distribution network internationally, exposure to fluctuations in currency exchange rates grows. Unfavorable currency fluctuations could thus have a material impact on the company’s financial performance.

On the positive side, ReneSola remains focused on monetizing its downstream projects while looking for opportunities to expand its pipeline of distributed generation and utility-scale solar projects across key markets.

Price Movement

ReneSola has outperformed the Zacks categorized Solar industry price over the last one year. The company’s share price has dropped 44%, compared with the industry’s 49.7% decline.

The main reason for this industry-wide downturn lies in the looming glut of solar panels. As solar players continue to step up production in an effort to seize a higher market share, the supply of panels is outweighing demand significantly.

However, ReneSola was able to outperform the industry backed by its shift from a simple solar product manufacturer to a multi-faceted participant across the value chain. The company declared the plan in mid 2015, which involves a control access from the OEM business and aggressive project development. Notably, ReneSola is transitioning to downstream operations and scaling back its module business.

ReneSola currently has a pipeline of over one gigawatt of projects in various stages and is focused on developed markets which are expected to have stable returns and healthy cash flow.

Zacks Rank & Key Picks

ReneSola carries a Zacks Rank #5 (Strong Sell). A few better-ranked stocks in the Oils-Energy sector include Diamondback Energy, Inc. (NASDAQ:FANG) , Abraxas Petroleum Corporation (NASDAQ:AXAS) and Noble Energy, Inc. (NYSE:NBL) .

Diamondback Energy has seen 14 upward estimate revisions over the last 60 days for 2016. During the same time frame, its estimates increased from $1.03 to $1.39, reflecting an upside of 35%. The stock sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Abraxas Petroleum, with a Zacks Rank #2 (Buy), has seen three upward estimate revisions over the last 60 days for 2016. During this period, its estimates narrowed 25% from a loss of 12 cents to a loss of 9 cents.

Noble Energy, another a Zacks Rank #2 stock, has seen 14 upward estimate revisions over the last 60 days for 2016. During the same period, its estimates narrowed 12.8% from a loss of $1.09 to a loss of 95 cents.

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