Sunny Days Ahead For First Solar (FSLR)


The past few years have been a nightmare for solar companies. First, the financial crisis scared away potential customers and lowered sales. Then governments, particularly in solar-friendly Europe, began cutting spending to rein ballooning deficits — including spending on solar power subsidies.

This all came against a glut of cheap panels, many from Chinese competitors that sent prices into a tailspin and erased profits in the fast-growing industry. But this year, First Solar (NASDAQ:FSLR) may have finally turned things around for this industry.

FSLR provided strong guidance for 2013 through 2015 and investors are excited about solar stocks again on signs that global demand for solar products is improving.On the back of strong projected sales revenues, and efficiency news, First Solar shares have soared more than 90% over the past 2 months.

For 2013, First Solar is expecting revenues of $3.9 billion and EPS of $4.25, vs. consensus estimates of $3.17 billion in revenue and $3.60 in EPS.

For 2014 and 2015, First Solar expects net sales in the range of $3.5 billion to $4.0 billion and $4.2 billion to $4.8 billion, respectively vs. Analyst expectations of $3.35 billion and $3.65 billion

First Solar is expecting its 550 Megawatt Desert Sunlight project to start generating revenue later this year, hence, the improved earnings guidance. Additionally, the company also expects to reduce manufacturing costs and improve efficiency of its solar panels dramatically over the next four years. That, along with its strong balance sheet, would enable First Solar to compete well in the market against cheap panels made by debt-laden Chinese competitors.

The company reported a very strong and efficient first quarter, further strengthening the strong guidance that management has provided. For Q1 2013, First Solar posted revenue growth of 52% and a 7% increase in gross margin compared to Q1 2012. The company also reported significant improvements in cost management 1, resulting in an operating profit of $509 million versus an operating loss of $449 million last quarter.

Based on Market IQ's proprietary Fundamental metrics First Solar is expected to Outperform its peer group. Market IQ places First Solar in the top right quadrant of the Quality/Value chart indicating high Quality and Investment Value (see below).

For more insights, visit the Market IQ blog.

The above Quality - Value chart consists of the following companies: First Solar (NASDAQ:FSLR), SunPower Corporation (NASDAQ:SPWR), SolarCity Corporation (NASDAQ:SCTY), JA Solar Holdings Co. Ltd. ADS (NASDAQ:JASO), LDK Solar (NYSE:LDK), Trina Solar Ltd. (NYSE:TSL), and Yingli Green Energy (NYSE:YGE).

The Company's Qualitative strength can be seen in multiple areas such as Revenue Growth, Return on Equity (ROE), and Financial Strength.


  • Q1 2013 Revenues increased by 51.9% compared to Q1 2012
  • ROE increased significantly to 28.81% in Q1 2013 versus 7% in Q1 2012. This is a signal of significant strength within the corporation.
  • First Solar has an Equity to Debt ratio of 2.25, significantly higher than the industry average of 0.05 — indicating strong Financial Strength relative to its peers. Along with a favourable Equity to Debt ratio, the company maintains an adequate interest coverage ratio of 22 — a strong liquidity position gives First Solar a distinct advantage over its cash-strapped peers 2.



Market IQ's Valuation metrics suggest that First Solar is cheaper than 93% of its peers. Despite the recent surge in price, First Solar is attractively valued and shows a lot of potential over competitors who have priced in future earnings and revenue much more strongly (see below).


Note: The table above shows capped price multiples.

First Solar has remained an industry leader in utility-scale solar projects. Most recently, the company entered an agreement with major electrical utility holding company Southern Co. (NYSE:SO) to sell 139 megawatts of generation capacity. This deal highlights the company's strength in putting together large-scale projects.

Management is also steering the company into new regions including Japan, which is expected to become the second-largest solar market in 2013, thanks to a surge in installations caused by increase in government incentives.

First Solar agreed in April to acquire TetraSun, a Japan-based start-up developing high-efficiency solar panels designed for rooftop systems on homes and businesses. The company plans to initially market TetraSun products in Japan. The TetraSun acquisition fills a product gap for First Solar and helps the company de-risk its portfolio. Additionally, the acquisition will increase First Solar's competitiveness against rival firm SunPower (NASDAQ:SPWR) that has already been in the business for developing roof top panels.

First Solar is building strategic inroads in multiple "sustainable" global solar markets like Chile, China, Saudi Arabia and India. Saudi Arabia in particular is a strong prospect for the company — with no domestic natural gas or coal and some of the best irradiance in the world; Saudi Arabia offers great potential demand for solar 3.

First Solar is utilizing its strong balance sheet to make continued investments in improving its solar technology, manufacturing processes, and global reach, all while making meaningful improvements to its cost structure.

A confluence of factors, ranging from prospects in future markets to continued efficiency improvements should help First Solar fortify its competitive position in the future. With a strong pipeline of projects, on going acquisitions and continuous innovations, First Solar is expected to be a strong performer going forward.

1For Q1 2013, research and development costs were down by 17%, selling, general and administrative costs were down by 19%, production start-up costs were down by 66% and restructuring costs were down by 99%. During the same period, First Solar's capital expenditures decreased by 42% and cash reserves were up by 35%.

2First Solar has a significantly higher interest coverage ratio when compared to its peers (22 vs. – 3.45) — this illustrates the company’s strong ability to avoid short-term cash problems.

3The wealthy desert kingdom has ambitious plans to generate one third of its electricity through solar energy by 2032. This news bodes well for First Solar and offers to be a promising prospect for the company.

Commentary by:
Adil Yousuf

This commentary is for informational purposes only and does not constitute investment advice. The opinions offered herein are not recommendations to buy, sell or hold securities. Market IQ expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks , Investing Ideas , US Markets

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