How Can First Solar Inc Reignite Its Stock?

First Solar earnings have been pretty bad, how can the company turn it around?

Mar 8, 2014 at 10:16AM

First Solar's (NASDAQ:FSLR) last earnings report was pretty disappointing. Many solar companies are seeing double-digit revenue growth,  but First Solar is one of the few whose growth has stalled. Is First Solar consigned to be range-bound while the Chinese solar companies take market share? 

First solar earnings
For the fourth quarter, First Solar earned $0.89 per share on $768 million in revenue. That is pretty anemic versus consensus expectations of $0.99 per share profit on $965 million in revenue. Revenue was also down 28.9% year over year. 

Guidance was pretty bad as well, with First Solar expecting earnings of only $0.50 to $0.60 per diluted share on revenues of between $800 to $900 million for the first quarter of 2014. 

Efficiency is key 
At the end of the day, there doesn't seem to be as much demand for utility-scale solar in the near term. First Solar has a capacity utilization of 83% versus many Chinese solar companies that are running at full utilization, which is crimping margins and profit. 

One reason for the under-utilization is that First Solar solar panels are not as efficient as Chinese solar companies. The average conversion efficiency for First Solar modules in fourth quarter was 13.4%. 

This is lower than the average module conversion efficiency of Chinese tier-1 solar companies of 16% and significantly lower than industry-leading SunPower's (NASDAQ:SPWR) X-Series panels, which have a conversion efficiency of 21.5%. 

The relative inefficiency of First Solar's modules is keeping the company away from the current hot area in solar, distributed energy. Distributed energy is currently growing at a very fast rate and investors are bidding up distributed energy companies like SolarCity (NASDAQ:SCTY) and SunPower for their future growth and potential.

Many investors view distributed energy businesses as superior to traditional solar panel makers because distributed energy companies will see their margins increase as solar costs come down. Distributed energy is also insulated from solar panel oversupply, as those companies realize their cash flows from the long-term contracts rather than one-time orders from utility companies.

The bottom line
First Solar needs to improve module conversion efficiency significantly for its stock to get any traction. Improving module conversion efficiency lowers cost per watt and increases gross margins. It increases demand and allows First Solar to potentially compete in the rooftop market where space is very limited.

Improving module conversion efficiency is easier said than done but First Solar did buy TetraSun in April 2013 for that purpose. TetraSun's technology allows for potential conversion of over 21% at relatively low cost. 

So far we haven't heard much about the acquisition since First Solar bought the company. If First Solar does succeed in introducing a highly efficient solar module cost effectively, First Solar stock will have good times ahead. Until that time comes, the company may still see spotty demand and the stock itself will probably be range-bound for the foreseeable future. 

Why is our CTO investing over $100k in this stock?
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

 

Jay Yao has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers