by Aaron Levitt | May 7, 2014 9:36 am
While the solar sector has lost some of its shine recently — especially those firms based in China — industry stalwart First Solar (FSLR) continues prove why it’s still one of the best solar stocks around.
First Solar’s latest earnings report provided everything FSLR stock holders could want: higher profits, higher guidance numbers and great execution
All in all, First Solar’s numbers show that the sun still shines on those solar firms that continue to focus on utility-scale solar projects, rather than just manufacturer panels and arrays.
So if you’re looking to add some rays to your portfolio, here’s why FSLR stock should be one of your first targets.
Several solar stocks have been flirting with profitably lately, but First Solar remains the brightest star.
For the quarter ending in March, First Solar earnings jumped 66% year-over-year to $112 million, or $1.10 per share. That came on revenue growth of 26% to $950 million. Both figures trumped Wall Street’s estimates of 56 cents per share on $837.95 million, according to data provided by Thompson Reuters.
Several areas deserve credit for the beats.
First, First Solar’s strategy of not only being a producer of solar panels, but one that builds and operates grid-scale solar farms for utilities, continues to pay off For the quarter, First Solar managed to realize an extra boost in revenue from the sale of its 139-megawatt Campo Verde project to a renewable energy subsidiary of billionaire Ted Turner and utility Southern (SO).
As with other quarters, these massive projects can make or break FSLR revenues; about 65% of the First Solar’s revenue comes from building and selling large solar farms to utilities.
For the quarter, FSLR managed to increase its backlog of new grid-scale solar projects to 2.8 gigawatts (GW), though their total expected revenues of about $7.1 billion are down from the previously thought $7.5 billion.
First Solar also managed to identify another 12.2 GW worth of new potential sites for solar farms. both in the U.S. and abroad. According to CEO Jim Hughes, that will give FSLR the ability to “replace their pipeline into 2016 and beyond.”
Another benefit starting to manifest itself for FSLR was its recent buy of TetraSun. That solar startup is developing photovoltaic technology specifically designed for rooftops, which puts FSLR right into the thick of competing with major rivals SolarCity (SCTY) and SunPower (SPWR). It also gives First Solar a critical “in” into Japan’s growing rooftop solar market.
The solar stock also scored a big win on the efficiency front. Instead of producing industry-standard silicon-based photovalic panels, First Solar makes thin-film solar modules. Before the Chinese glut that flooded the market, these panels where some of the cheapest around. Unfortunately, they aren’t as efficient. It essentially takes more of them to produce the same kilowatt of power, meaning they’re perfect for massive solar farms … but not so great for your house. However, FSLR managed to increase efficiency for its new panels by about 120 basis points vs. the first quarter of last year.
Finally, cost reductions at both its panel-producing facilities as well as its power plants helped First Solar’s bottom line.
Given the recent struggles at panel producers like Yingli Green Energy (YGE) and ReneSola (SOL), First Solar’s continued focus on utility-scale projects will be its long-term savior. The fact that FSLR stock is an all-around solar play — especially now that it has an edge into rooftop and residential solar installations — could make it the best way to play the sector.
At 19 times earnings, FSLR stock isn’t necessarily cheap. But it looks a lot better when you consider that First Solar only trades for 14 times next year’s earnings, which are expected to ramp up by 85%.
It also seems more reasonable considering that FSLR shares, currently around $67 per share, nearly hit the $300 mark just before the recession — and it wasn’t profitable back then, nor did it have the same bullish catalysts (read: utility mega-deals across the globe) propelling it forward. In other words, its steady 55% climb over the past year, while not as drastic as its pre-recession heyday, seems more firmly rooted in reality.
And with management upping its full-year earnings forecast to $2.40 to 2.80 per share from previous forecasts of around $2.20, investors are getting pretty hefty earnings potential for its current price.
Bottom line: If you’re buying solar stocks at all, FSLR stock should be first on your list.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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