First Solar Stock: Sell-Off Presents Aggressive Opportunity

first solar stock analysis
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First Solar Stock Attractive at Fire Sale Prices

A major player in the solar segment is First Solar, Inc. (NASDAQ:FSLR), an excellent large-cap solar solutions technology company with a clean balance sheet and an intriguing risk-to-reward ratio, especially after retrenching 24% over the past three months.

The global solar market is rapidly growing in countries around the world, despite the hesitancy of the White House to endorse alternative energy.

While some investors are exiting the solar trade, my bullish view is based on the fact that solar power is here to stay and will accelerate, especially in dirty-air countries like China and India, the world’s two largest solar markets.

The Paris climate summit suggested that a staggering $2.5 trillion in solar investments would be required.

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Trading around $55.00, FSLR stock is well off its 52-week high of $81.72 and is worth a look for traders seeking a potential bounce.

Chart courtesy of StockCharts.com

The technology behind First Solar is its low-cost advanced proprietary thin-film semiconductor technology that the company suggests can produce solar power at a lower cost than non-subsidized electricity.

For countries where power is expensive or difficult to source, the strategy by First Solar makes sense and could really pay off in the long term.

Why the Bull Story Holds for FSLR Stock

Since the initial strong upward push in solar stocks in 2008, when FSLR stock was trading at a whopping $284.00, the industry has undergone a significant structural change.

We have seen some solar companies collapse, but the aftermath has resulted in stronger solar companies with much cleaner balance sheets and improved efficiency.

First Solar holds a manageable $465.0 million in debt but has about $3.1 billion in cash. The company is also profitable and is generating positive free cash flow (FCF).

The revenue picture has been flat and is expected to decline in 2018 prior to staging a rebound in 2019.

Fiscal Year

Revenue (Billions) Growth
2013

$3.3

2014

$3.4 3.0%
2015 $3.6

5.6%

2016

$2.9 -19.0%
2017 $2.94

1.4%

(Source: “First Solar Inc.MarketWatch, last accessed August 9, 2018.)

Revenues are estimated to contract 15% to $2.5 billion in 2018 but rise by 21.2% to $3.0 billion in 2019. (Source: “First Solar, Inc. (FSLR),” Yahoo! Finance, last accessed August 9, 2018.)

Much of the success for First Solar will depend on its performance in the fast-growth solar markets.

First Solar is facing some earnings pressure, with two straight years of declines.

For 2018, FSLR is estimated to report earnings of $1.55 per diluted share, down from $2.59 per diluted share in 2017. A positive sign is that First Solar is expected to drive earnings to $3.05 per diluted share in 2019.

A mistake by First Solar occurred after a big earnings shortfall in the second quarter, ending a trend of outperforming in 12 consecutive quarters by an average of over 100%.

The key FCF surged to $827.0 million in 2017, which was the highest level in five years, reversing two straight years of negative FCF.

Fiscal Year

Free Cash Flow (Millions)

Growth

2013

$573.6

2014

$423.4 -26.17%
2015 -$527.4

-224.54%

2016

-$22.7 95.7%
2017 $827.0

(Source: MarketWatch, op cit.)

Analyst Take

The weakness in FSLR stock presents an aggressive opportunity for traders looking to play a potential bounce if the price can hold key support at $50.00.

First Solar is arguably the best of breed in the solar segment. The stock is volatile but could pay off for the patient investor.