First Solar (FSLR) Faces an Eclipse in 2013

Shares of First Solar (FSLR: Analysis) plunged last week, after its reported weak fourth quarter earnings followed by poor guidance for the next quarter. The solar power company, which lost nearly 90% of its market cap over the past five years, reported fourth quarter earnings of $1.74 per share on revenue of $1.1 billion.

This missed the consensus estimate of $1.75 per share on $1.3 billion in revenue. Gross margins contracted from 35.1% to 25.32% from the prior year quarter. Operating margins grew from 13.92% to 14.6%, reflecting positive improvements in its operating cost structure. Daily Chart
However, First Solar's forward guidance was bleak, forecasting first quarter revenue between $650 million to $750 million - missing the average expectation of $822 million. Its projected cash flow - estimating a range between break-even and $100 million - also came up short of the expectations of $214 million. Solar stocks initially rallied following President Obama's State of the Union address, which called for increased government spending on alternative energies, despite the embarrassing Solyndra debacle in September 2011. However, Europe' worsening situation and continued bickering at Capitol Hill has cast doubt on any broad-based recovery for the solar industry. After three decades of alternative-energy subsidies from the U.S. government, wind and solar power still account for less than 4% of total U.S. energy production. For the government, it is becoming painfully clear that these alternative power sources simply lack the scale and power of traditional energy sources. Although analysts currently expect First Solar to grow its earnings by 40% in the next quarter, that forecast is dependent on a stronger global macro environment that is more accommodating for solar companies. Over the next three years, First Solar is expect to post negative annual growth, at -12% for 2013, -15% for 2014 and -10% in 2015 - although profits are expected to remain positive, unlike many of its solar industry competitors. During the fourth quarter, First Solar's cost per watt was $0.67 - an increase of 3 cents over the previous quarter, but a decline of 8 cents from the prior year quarter. That improvement in pricing is expected to improve throughout fiscal 2013, allowing it to remain competitive with its smaller, cheaper Chinese competitors. Costs also dropped, with the total balance of systems costs dropping 14% in 2013. The company also announced a new, more efficient CdTe panel, which will be more power efficient than its older solar modules. These panels are expected to replace its older modules, which are cheaper to produce but less energy efficient. Chinese companies such as SunTech (STP: Analysis) and Yingli (YGE: Analysis) have been exploiting First Solar's aging technology to increase its market share with newer, cheaper tech over the past five years. First Solar is also expanding into South Africa and the sub-Saharan Africa division in an attempt to capitalize on the rapidly developing continent. It has also spread into Chile, India and China, to capitalize on rapid growth markets that prefer to use cleaner alternative energies from the ground up. Shares of First Solar trade at 7.5 times forward earnings with a 5-year PEG ratio of -0.35. Those distorted earnings suggest that the stock is undervalued, but it faces negative growth on the immediate horizon. The stock does not pay a dividend. Other News About FSLR Will First Solar See the Light of Day Again? A bearish take on First Solar. First Solar: Sizable Sell-Off Creates Another Opportunity to Pick Up Some Shares A bullish take on First Solar. Other Stocks in the News J.C. Penney Needs a Miracle in 2013 Are Ron Johnson's days numbered? The Future of Wearable Technology Inside Google Glass and Apple's iWatch. Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Mar 5, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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