Ontario, Canada-based Canadian Solar Inc. CSIQ will release second-quarter 2015 financial results before the opening bell on Aug 18, 2015. The company posted a positive earnings surprise of 38.7% last quarter. Let's see how things are shaping up for this announcement.

Factors Affecting this Quarter

Canadian Solar connected four projects totaling 40.2 megawatt peak (MWp) to the grid in the UK during the first quarter. It had plans to energize two more projects in the second quarter. The company also supplied solar photovoltaic modules for the Takataya Hibiki PV plant in Kitakyushu, Japan. These are expected to boost Canadian Solar’s top line in the second quarter.

On its last earnings call, Canadian Solar guided shipments in the range of 950 MW to 1,000 MW for the second quarter of 2015. Total revenues are expected in the range of $570 million to $620 million with gross margin between 13% and 15%.

The company also closed the acquisition of San Francisco-based leading solar energy developer, Recurrent Energy during the first half of this year. This has boosted the company’s total solar project pipeline to 8.5 GW from 4 GW while its late-stage project pipeline expanded by 1 GW to 2.4 GW. This acquisition is expected to create an estimated revenue opportunity of at least $2.3 billion under a build-and-sell business model over the next couple of years.

However, owing to fierce competition from Chinese solar manufacturers, the company is slowly losing its ground in Asia despite having a manufacturing base in China. Sales from the Asian market and others comprised 33.6% of total revenues in the first quarter of 2015, notably down from 50.4% in the year-ago quarter.

Earnings Whispers?

Our proven model does not conclusively show that Canadian Solar is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.  

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -46.15%. This is because the Most Accurate estimate stands at 7 cents per share, lower than the Zacks Consensus Estimate of 13 cents.

Zacks Rank: Canadian Solar’s Zacks Rank #3 when combined with a -46.15% ESP makes an earnings prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Peer Releases

JA Solar Holdings Co. Ltd. JASO posted second-quarter 2015 adjusted earnings of 27 cents per diluted American Depositary Share (ADS), surpassing the Zacks Consensus Estimate of 9 cents by an impressive 200%

First Solar Inc. FSLR reported adjusted second-quarter 2015 earnings of 52 cents, sweeping away the Zacks Consensus Estimate of 7 cents by 643%.

SunPower Corp. SPWR reported second-quarter 2015 adjusted earnings per share of 9 cents, lagging the Zacks Consensus Estimate of 14 cents by 35.7%.

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