First Solar, Inc. (NASDAQ:FSLR) stock has lost more than 43% of its stock value year-to-date despite delivering impressive financial performance over the past several quarters.
The shares of First Solar stock were negatively impacted by the bearish outlook of investors to the entire solar industry because of several factors: the poor performance of its peers, the risk of higher interest rates, and the demand to change or ditch net metering rules. Several states, including Hawaii and Nevada, already changed their net metering rules.
Despite the challenges confronting the solar industry, First Solar has been doing well, and FSLR stock investors shouldn’t be discouraged. Instead, they should look forward to the potential upside of FSLR stock over the long term.
Here are some of the reasons why you should be bullish on FSLR stock.
First Solar Stock Earnings Consistently Beat Street Estimates
First Solar Inc. Has delivered earnings that have beat the consensus estimates of Wall Street analysts significantly since the second quarter of 2015.
|First Solar Quarterly Earnings|
|Date||Quarter||Earnings Per Share (EPS)||Consensus|
First Solar Inc.’s quarterly revenues during the same periods also surpassed the consensus estimates of analysts, except in the first quarter of 2016.
|First Solar Quarterly Revenues|
|8-3-16||2Q16||$934.38 million||$862.68 million|
|4-27-16||1Q16||$848.48 million||$971.20 million|
|2-23-16||4Q15||$942.32 million||$928 million|
|8-4-15||2Q15||$896.32 million||$744.34 million|
During the recent earnings call with analysts and investors, First Solar CEO Mark Widmar said he would continue implementing the same disciplined approach to long-term strategy, which has served the company extremely well. Widmar became the company’s CEO in July after James Hughes stepped down from his position.
First Solar raised its earnings guidance in the range of $4.20 to $4.50 per share and reiterated its revenue forecast of around $3.8 billion to $4.0 billion for the fiscal year 2016. (Source: “First Solar, Inc. Announces Second Quarter 2016 Financial Results,” First Solar, Inc., August 3, 2016.)
First Solar Bookings Are Growing
Widmar reported that First Solar Inc. shipped nearly 715 megawatts of modules in the second quarter. Its total shipments reached 1.6 gigawatts as of June 30. He said the company’s bookings were around 1.4 gigawatts year-to-date, including the period up to FSLR stock’s earnings call on August 3.
First Solar continues to experience significant bookings opportunities in the United States and India. The U.S. remains its largest geography with over 40% of its total, but the company noted that it continues to have a diversified geographic mix of potential booking opportunities.
During the previous quarter, the company achieved approximately 800 megawatts of bookings, including two projects totaling 180 megawatts DC in the United States. Its entire projects with executed power purchase agreements (PPAs) in the country with cash on deliveries (CODs) is now more than 1.2 gigawatts DC in 2019 or later.
First Solar also obtained new bookings of 280 megawatts DC in India. It was also awarded 357 megawatts DC as part of its module supply agreements in France, Israel, and Thailand, and 53 megawatts DC in Zambia.
Widmar said First Solar received additional opportunities of more than 410 megawatts DC, which is expected to be converted to bookings during the remaining months of 2016.
According to Widmar, the company’s potential bookings opportunities increased to 24 gigawatts, an increase of almost 700 megawatts from the first quarter of 2016. The company’s mid-to-late-stage booking opportunities is now 1.8 gigawatts with international opportunities, representing 90% of the figure.
First Solar had 30 installed production lines with a global manufacturing capacity of around 3.2 gigawatts as of June 30, 2016. It had a total of 1,045 megawatts of projects sold/under contract and 2,175 megawatts of projects with executed PPA not sold/not contracted by the end of the period. (Source: “Form 10-Q,” First Solar, Inc., August 3, 2016)
Most recently, First Solar connected 130 megawatts of utility-scale solar power to the grid in India, which can provide electricity to an average of 277,500 homes in the country. The company recently achieved a milestone of one gigawatt of photovoltaic (PV) solar capacity in India. (Source: First Solar Connects 130 MW Of Utility-Scale Solar Power To The Grid In India, First Solar, Inc., August 10, 2016.)
The company is becoming more competitive and profitable in the country, where it has a technological advantage because of its hot and humid climate and self-developed projects. Its “CadTel” technology offers a superior spectral response in a humid climate and excellent temperature coefficient in a hot climate.
First Solar was also granted bookings for 160 megawatts DC of PV modules in Turkey.
First Solar Module Lead Line Efficiency is Improving
The management of First Solar reduced its costs through steady executions across its portfolio of systems projects. The company’s module costs per watt also dropped further in the second quarter of 2016. Its total estimated reductions in operating expense and cost of sales would be around $60.0 million to $80.0 million annually going forward.
Its module lead line efficiency improved at 16.7% in the quarter driven by its CadTel technology. Widmar said the company’s latest decision to reallocate capacity to focus on its “Series 5” module would continue to position First Solar to achieve success in the future. The Series 5 is optimized for cost-effective installations and it can boost module efficiency by approximately 100 basis points.
First Solar’s module lead line efficiency target is 17% by the end of the year. The company will likely meet its efficiency goal, which would help reduce the costs for its buyers and increase its orders.
First Solar Stock Has Strong Balance Sheet
It is also important to note that FSLR stock has a strong balance sheet, with $7.54 billion in total assets, compared with its total debts of $1.74 billion as of June 30, 2016.
The company cut its total debt in the second quarter by $66.0 million to $233.0 million in the previous quarter. The company repaid $70.0 million of its remaining balance on its Malaysia debt facilities.
First Solar stock has $1.67 billion in total cash, cash equivalents, and marketable securities by the end of the quarter. (Source: First Solar, Inc., August 4, 2016, op cit.)
The Bottom Line for FSLR stock
The substantial decline of FSLR stock should be perceived as an opportunity for long-term investors to buy a stake in First Solar. First Solar stock is currently trading at $37.59 per share, a 50% discount from its highest trading price of $74.29 per share over the past 52 weeks.
I believe FSLR is an attractive value stock with compelling growth drivers over the long term. Remember that First Solar Inc. is growing in international markets and its CadTel technology produces more energy than competing conventional crystalline silicon solar modules with an equal efficiency rating.
FSLR stock is poised to trade higher in the future and generate handsome returns for investors. Baird analyst Ben Kallo issued an “outperform” rating on the stock, with a price target of $60.00 per share based on the fact that the company is in a strong competitive position.