First Solar ( FSLR ), the largest U.S. solar manufacturer, reported a relatively mixed set of Q3 results on November 6, beating market expectations on earnings but missing the consensus on revenues. The company's results are usually subject to significant volatility, since its core business of project development sees irregular revenue recognition. For this quarter, revenues rose by around 66% sequentially to $889 million, driven by higher activity on the Desert Sunlight Project which faced delays during Q2, while net income rose to $88 million from around $4.5 million during the previous quarter. On a year-on-year basis, net sales and income recorded declines. Financial results aside, the company made relatively good progress on the operating and business development front, improving the conversion efficiency of its panels, cutting manufacturing costs while also expanding its order book and project pipeline. Here are some of the key takeaways from the company's earnings release.
Trefis has a $64 price estimate for First Solar , which is nearly 15% ahead of the current market price.
New Bookings And Planned Expansion of Manufacturing Capacity: First Solar increased its total bookings for systems and modules by around 100 MW sequentially to 3.3 GW. Through the first nine months of the year, the company recorded 1.6 GW of new bookings compared to shipments of 1.1 GW. This translates to a book-to-bill ratio of close to 1.5, which is solid. The company's potential booking opportunities increased by about 1 GW sequentially to 13.7 GW, driven by growth in markets such as the United States, Latin America and India. About 56% of the company's potential pipeline now comes from overseas.
The demand for solar panels in the United States could be strong over the next two years, as installers take advantage of the solar investment tax credit ( ITC ) which is set to expire at the end of 2016. First Solar is looking to capitalize on this demand by expanding its panel manufacturing capacity by around 46% by 2015. The company intends to do this by improving the throughput of its existing facilities, restarting some idle manufacturing lines at its Malaysian facility and also adding incremental capacity at its Ohio plant. The company currently has about 1.8 GW of panel capacity.
Panel Efficiency Improvements: Although First Solar's panels trail silicon-based panels in terms of conversion efficiency, the company's efficiency gains have been outpacing the broader industry. Over the quarter, average panel efficiency stood at around 14.2%, up by around 0.2% sequentially and 0.9% year-over-year. Better efficiencies will make the company more competitive in the rooftop market, where higher energy density panels are valued, while also helping to pare down manufacturing costs and improve margins. Per the company's roadmap, panel efficiencies are expected to improve to above 19% by the year 2017. Since Cd-Te thin film panels have a higher theoretical upper limit for efficiency compared to silicon-based panels, we believe that First Solar could eventually have among the highest efficiencies in the industry.
No Plans For SolarYieldco, Company Is Retaining Some Assets: First Solar indicated that it was not currently interested in creating a Yieldco to hold its power plants assets, since it didn't see any opportunities to to capture greater market share or higher margins using the structure. Yieldcos, which are typically publicly listed entities that are spun off from solar companies, own and operate solar assets that have long term power purchase agreements with utility companies. Yieldcos have become popular in the renewable energy industry with firms like SunEdison and NRG Energy adopting the structure to spin off assets and reduce funding costs. However, First Solar indicated that it was holding some of its projects on its balance sheet through their commercial operation date, while retaining an interest in the projects in some cases. First Solar noted that it would likely begin to break out the financials of its retained ownership interest from 2015 onwards.
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