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Solar sector kicking off earnings season in wake of SunEdison bankruptcy

Solarcompanies are set to begin releasing earnings less than a week after industrygiant SunEdison Inc.filed for bankruptcy in New York. While the company's collapse is not expectedto hold back industry growth, competitors are responding by re-evaluating theirsources of financing, Avondale Partners LLC senior analyst Michael Morosi said,adding that a lack of funding diversity was "a primary factor in SunEdison'sfailure."

, a manufacturerand project developer, is scheduled to kick off the industry's earnings seasonApril 27, six days after SunEdison filedfor Chapter 11 restructuring in the Bankruptcy Court for the Southern Districtof New York.

Morosi,in an April 27 client note, said he expects industry earnings to be marked by "strongvolumes, a bullish outlook for bookings and installation growth, and cautiouscommentary regarding project margins."

Analystsexpect First Solar to report earnings of 97 cents per share on $940 million inrevenue, according to the S&P Global Market Intelligence consensusestimate. A year ago, the company reported quarterly earnings of 62 cents pershare on $469.2 million in net sales.

Onan earnings call in February, First Solar CEO James Hughes said his company hasbeen successful by "being cautious and pragmatic and to make sure that wehave the financial standing to be the last man standing if we go throughcyclical periods within the industry."

DeutscheBank Securities Inc. analyst Vishal Shah said First Solar is "a relativesafe haven," given its "strong" balance sheet and "robust"near-term earnings outlook.

"Wesee lower selling prices being partially offset by cost-per-watt reductions andtight cost controls," S&P Capital IQ analyst Angelo Zino wrote in anApril 23 note.

Analystsexpect 2016 to be an explosive year for solar project development in the U.S.,with new installations increasing by more than 119% over last year asdevelopers work through a project pipeline that was pumped up in anticipationthat the 30% federal investment tax credit would expire at the end of thisyear. Congress extended the incentive, and some developers have talked aboutpushing some projects out into 2017, in part to take advantage of expected costdeclines. But there likely is a limit to how many projects can be delayed, GTMResearch senior solar analyst Cory Honeyman said.

Meanwhile,with public equity markets likely playing a smaller role in financing thisyear, solar executives are pursuing "an 'all of the above' financingstrategy," Morosi said, including third-party sponsor equity, jointventures with utilities and asset-backed securitizations.

Themarket for asset-backed securities tightenedrecently as investors demanded higher yields. However, Oppenheimer & Co.Inc. analyst Colin Rusch recently said yields on BBB-rated corporate debtsuggest capital expenses could come down, particularly for projects withinvestment-grade cash flows.

SunEdison'sfailing may also chasten an industry that has relentlessly pushed prices downin an effort to win contracts with offtakers. "Ultimately [SunEdison'sbankruptcy] makes no difference to Bloomberg New Energy Finance's new buildforecasts, although it might prompt developers to be less ambitious with theirassumptions when bidding in solar tenders," BNEF's head of solar JennyChase said in a statement. "This may mean a temporary end to the stream ofrecords for 'lowest tender price bid' as companies try not to offer solarelectricity below cost."

Hughesin February saidsolar contract prices this year should fall below the very low levels seen in2015.