How Can First Solar Inc Reignite Its Stock?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

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.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2868745, ~/Articles/ArticleHandler.aspx, 8/29/2015 5:40:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Jay Yao

Jay is an energy and materials writer. He reports on oil and gas fundamentals and macro trends in the industry.

Today's Market

updated 8 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 3:59 PM
FSLR $47.80 Down -0.04 -0.08%
First Solar CAPS Rating: ***
SCTY $48.00 Up +1.77 +3.83%
SolarCity CAPS Rating: ****
SPWR $24.32 Up +0.45 +1.89%
SunPower Corporati… CAPS Rating: ****