First Solar's (FSLR -3.57%) stock is now trading at quadruple its 52-week low, an amazing run for any stock. Now that the company is once again worth $4 billion, it's worth asking whether it's worth buying or running for the hills?
The core of First Solar
The heart of First Solar is the thin film CdTe panels the company was built around. For years the company was the global cost leader, generating margins of around 50%.
But all of that changed when China began installing GW worth of solar cell and module capacity, flooding the market with product. Prices began to plummet, and by 2012 it appeared that First Solar's lead had evaporated. China can now make solar panels at the same cost per watt and offer them with higher-efficiency technology, pushing First Solar out of commercial and residential solar markets.
The good news is that First Solar is still the leader in utility-scale projects. These projects are expected to account for $3.6 billion of $3.8 billion-$4.0 billion in revenue this year, showing that First Solar has little share outside of utility-scale projects, which is why it's making big bets on new technology.
A big bet on new technology
The game changer over the past month has been a new road map for thin-film modules and the acquisition of TetraSun.
On the thin-film side, First Solar expects to be making 14.9% efficient modules by the end of 2014, up 2% from 2012. By 2017, that number could be 17.2%. The problem is that SunPower (SPWR -4.84%) already makes a panel that's 21.5% efficient and Chinese manufacturers Trina Solar (NYSE: TSL) and Yingli Green Energy (NYSE: YGE) can already beat First Solar's 2014 target and are coming close to its 2017 target. It's these companies that First Solar needs to leap over, from an efficiency standpoint, to stay relevant.
That's why the acquisition of TetraSun was so important. The company can reportedly make cells that are 21% efficient, leading to module efficiency of about 19%, and if costs are competitive with China (as they claim) this will give First Solar an opportunity to grow beyond utility projects.
First Solar's stock -- by the numbers
Strategically, First Solar is in an OK position, but a company like SunPower is still in better shape. But First Solar is still making a profit so if it can be purchased at a value that could be great for investors. Below I've put together what First Solar's own guidance is for the next three years to show the stock's value:
|
2013 |
2014 |
2015 | |
|---|---|---|---|
|
Module Shipments |
1.6-1.8 GW |
1.8-2.2 GW |
2.3-2.7 GW |
|
Net Sales |
$3.8 billion-$4.0 billion |
$3.5 billion-$4.0 billion |
$4.2 billion-$4.8 billion |
|
Earnings Per Share |
$4.00-$4.50 |
$2.50-$4.00 |
$4.00-$6.00 |
|
Operating Cash Flow |
$0.8 billion-$1.0 billion |
$500 million-$800 million |
$600 million-$1 billion |
Source: First Solar
You can see that shipments are expected to grow but sales and earnings are going to dip in 2014. This is what concerns me because the further out your guidance goes the less accurate it is. If the company earns $4.00 per share this year the stock trades at 11.5 times earnings, it's not a terrible price if the company can grow. But if 2014 earnings are just $2.50, then that's a 19-forward P/E ratio and a very steep price for the stock.
Foolish bottom line
There are so many unknowns for First Solar stock that I just don't think it's a great buy right now. The company is playing catch up from a technology standpoint, and with millions of dollars in capital expenditures ahead due to the TetraSun acquisition and no guarantee of success, the stock is a big risk.
If we see even more progress than the guidance outlined above, then the thesis might change, but I don't think 2014's numbers offer good enough value to jump in right now.
