First Solar FSLR posted earnings of $1.45, which blew past the Zacks Consensus Estimate of 60 cents. Revenue of $928 million was 31.1% higher than the expected $708 million.
Management commentary indicates that demand remains very strong across the world with the pandemic merely delaying project installations and tooling. China, the biggest market was set back by the pandemic but it’s broadly expected to keep its target at around 60 gigawatts per year of installed PV capacity in its fourteenth five-year plan to be adopted next year. Europe is seeing pandemic-related delays and India also monsoon-related delays. But new policy decisions this year in support of solar installations are positives for the industry.
Back in the U.S., the Energy Information Administration (EIA) forecast calls for 14 gigawatts of utility scale solar capacity to be added in 2020.There is also increasing demand from North American companies looking to reduce their carbon footprint. Management appears confident that project sales will be in line with original expectations, which led them to reinstate guidance of 5.86 gigawatts (3.7 gigawatts were shipped through the end of the third quarter).
The contracted backlog is 6.7 gigawatts (for delivery in 2021) and 3.6 gigawatts (for expected deliveries through 2022 and 2023). The opportunity pipeline for modules also looks good, totaling 8.3 gigawatts that could be booked over the next 12 months.
The main challenges for the industry are currently centered on the concentration of the supply chain in China and high spot rates for freight.
PV model manufacturers rely on Chinese polysilicon ingots and wafers to manufacture their crystalline silicon modules. So operational disruptions such as those related to the pandemic affects the entire market, which in turn drives up prices. The higher prices, along with deteriorating bilateral relationships and the volatility in supply have reignited debates about internal production in Europe and India and also increased chances of new government policy.
For FSLR, these challenges impose lower risk because the company has a vertically integrated manufacturing process that includes diversified sourcing and streamlined production, eliminating several steps that greatly increase efficiency. As a result, the company was able to maintain very high utilization rates, with a corresponding positive impact on its margins, remaining on track to lower the cost per watt by 10% this year.
The solar industry of which First Solar is a part is in the top 28% of Zacks-ranked industries. And it has been seen historically that the top 50% outperform the bottom 50% by a factor of 2 to 1. Considering this fact and First Solar’s strong performance in the recently concluded quarter, this may be a good time to invest in other solar stocks.
Here is a list of buy-ranked stocks that’s also looking good now-
Canadian Solar Inc. CSIQ
Canadian Solar is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications for both on-grid and off-grid use to customers worldwide..
Zacks Rank #2
Topped estimates in three of the last four quarters at an average rate of 28.26%
Earnings are expected to grow 18.72% this year and 48.97% in the next
Revenues are expected to grow 10.12% this year and 29.87% in the next
The company is expected to report on Nov 10
SolarEdge Technologies, Inc. SEDG
The company's SolarEdge system offers power optimizers, inverters and a cloud-based monitoring platform for residential solar installations as well as commercial and small utility-scale solar installations.
Zacks Rank #2
Topped estimates in three of the last four quarters at an average rate of 13.75%
Earnings are expected to grow -13.06% this year and 36.53% in the next
Revenues are expected to grow 5.63% this year and 27.51% in the next
Both revenue and earnings in 2021 are expected to be well above 2019 levels
The company is expected to report on Nov 2
SunPower Corporation SPWR
SunPower sells semiconductor-based solar cells and solar panels, systems and services worldwide to residential, commercial and utility-scale power plant customers.
Zacks Rank #2
Topped estimates in each of the last four quarters at an average rate of 244.23%
The company is expected to report 10.34% lower losses this year and generate profit in the next
Revenues are expected to grow -40.11% this year and 20.37% in the next
While expected earnings of 32 cents in 2021 will be much better than the 2019 loss of 29 cents, revenue of $1.44 billion is currently expected to lag the 2019 revenue of $1.99 billion
The company is expected to report on Oct 28 (today)
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