After years of coming up short of investors' expectations, First Solar (NASDAQ:FSLR) appears to be on a sustainable growth path in the solar industry. The transformation is nothing short of spectacular, and we could be seeing the reemergence of one of the biggest powers in solar.
This week, investors were impressed by better-than-expected sales and outlook, but First Solar's real strength in the industry lies elsewhere.
Beyond the headlines
Most news reports focus on how First Solar's net sales of $896 million, earnings per share of $0.93, and full-year guidance of $3.30 to $3.60 beat expectations. But what's key to understand is why First Solar is crushing expectations, and why these trends will likely continue.
The key comes down to First Solar's improving panel efficiency, something we saw last quarter as well. Average fleet efficiency for Q2 was 15.4%, which was up 0.7% from Q1 and 1.4% from a year ago. This is the result of integration of technology bought from General Electric and internal R&D that's now being rolled into plants.
On the ground, this efficiency advantage will allow First Solar to beat competitors on projects it wants to build, and allow the company to command higher margins on those projects. This is because it can get more energy from the same amount of space as commodity solar panel installers. Take a look at the two charts below to see the energy density advantage the company expects by the end of this year, and where future improvements will leave it.
The chart below shows the company's thin-film advantage in 2017, which is especially evident in the hot, moist Southeastern U.S., since its thin-film panels are less susceptible to environmental conditions.
First Solar's advantage may be overstated slightly in 2017 predictions: I think most panels in the U.S. then will be higher-efficiency mono-crystalline panels, not the multicrystalline panels dominating the market today. But the trend is clear either way.
Yieldcos create another path for monetization
The other big development for First Solar was the creation of 8point3 Energy Partners, its yieldco with SunPower. This company allows First Solar to push projects down to the yieldco, in which it owns about a 31% stake and half of the incentive distribution rights.
This ownership is beneficial long-term, and First Solar also gets cash from the yieldco when it sells projects. So, there's a near-term benefit and a long-term benefit to having the yieldco in the fold, which is starting to show up in First Solar's financials.
Everything looking up for First Solar
With an improved solar panel and a yieldco that adds long-term value, First Solar is well positioned to continue growing profitably in the solar industry, something very few companies can say. That makes it one of the best stocks in the solar industry, and one I think investors should hold on to for many years to come.