Bear of the Day: First Solar (FSLR)

Most of the developed world agrees that an eventual transformation toward renewable energy sources is both inevitable and beneficial. Reducing our reliance on fossil fuel energy will lower harmful emissions, slow the pace of destructive climate change and provide clean, reliable sources of energy to power the world economy going forward.

No responsible world citizen would root against the proliferation of solar energy sources as a replacement for fossil-fuel energy generation. Solar power is cheaper and more efficient than ever and it will almost certainly play a big part in providing the energy needs of consumers and businesses for a long time to come.

Unfortunately, the short-term trend for solar manufacturers like First Solar (FSLR) is not quite as positive.

First Solar’s stated goal of providing solar electricity "at cost levels that compete on a non-subsidized basis with the price of retail electricity in key parts of the world" is a laudable goal, but over a shorter time frame, the accomplishment of that goal depends on the market prices of fossil fuels - which have been trending downward.

Coal gets a lot of bad press as a relatively “dirty” form of fuel for producing electricity, but it’s really natural gas that constitutes the biggest threat to the widespread renewable energy. Advances in extraction technology have reduced the cost of natural gas to multi-year lows. This is by no means a permanent situation, but for the foreseeable future, it’s going to be difficult for the price of solar technology to keep pace.

Source: US Energy Information Administration,

The current spot price of approximately $2.30/million BTUs is roughly the same price natural gas was trading in 2002.

Despite the fact that they make some of the most efficient and cost-effective solar equipment available, it’s simply not a fair fight when First Solar products have to compete against rock-bottom lows in gas prices, and earnings have suffered as a result.

The last two quarters have featured huge misses of the Zacks consensus Earnings Estimate and the forecast when they report quarterly results on Thursday night has fallen 13% in the past 90 days – from $1.22/share to $1.06.

Based on recent periods, it would seem that the chances of a positive surprise are smaller than those of a significant disappointment.

It’s way too early in the game for investors to give up on solar energy, but it might be rough sledding for a while. JinkoSolar (JKS) and Sunnova Energy (SOL), both Zacks Rank #2 (BUY), are better bets than First Solar, but it also might be a good time to go light on solar investment and wait to see how the cards fall over the next several quarters.

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

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