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
) and Yingli (YGE
) 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?
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Published on Mar 5, 2013
By Leo Sun