First Solar, Inc. (NASDAQ:FSLR) stock was heading significantly higher in early Wednesday trading after the solar panel manufacturer crushed earnings estimates in the fourth quarter.
While revenue was quite another story and guidance was also weak, investors either didn’t notice or didn’t care.
In fact, Wall Street’s been quite enamored with FSLR stock this year. As of yesterday’s close, shares of First Solar were up more than 22% year-to-date, besting the returns of the S&P 500 by about 20 percentage points.
First Solar Earnings Glance
First Solar earnings for the fourth quarter made a mockery of expectations, with profits of $1.89 per share of FSLR stock coming in at more than twice the 76-cent EPS figure analysts were looking for.
That, however, is about where the good news ends.
FSLR revenue last quarter severely missed consensus estimates, coming in at $1.01 billion vs. calls for $1.28 billion. And first-quarter results won’t be much better, either. First Solar sees a loss of 25 to 35 cents on sales of $550 million and $650 million, while Wall Street was looking for 80 cents on revenues of $924 million. Yikes.
Normally, those kinds of shortfalls would be enough to counter a tremendous earnings beat and send First Solar stock plummeting.
Normally.
Yieldco: The Big Opportunity for First Solar, Inc.
Investors are overlooking the FSLR revenue and guidance misses Wednesday after yesterday’s decision to form a publicly traded yieldco with fellow solar power producer SunPower Corporation (NASDAQ:SPWR). FSLR stock rallied 10% Tuesday on the news, and apparently the optimism carried in to Wednesday’s trading.
The new joint vehicle will pool certain assets from First Solar and SunPower, and the SPWR-FSLR yieldco formed in the process will operate like a power plant, selling long-term contracts to energy users. Cash flows will therefore be extremely predictable, and the structure of the yieldco mandates that shareholders are paid out a significant percentage of the cash flows.
For FSLR stock, which at a beta of 1.8 is 80% more volatile than the overall stock market, the yieldco represents lower risk and higher predictability from the solar power innovator.
SunPower CEO Tom Werner said the two companies can now build projects together with a lower cost of capital, benefiting both SPWR and FSLR stock investors.
The move isn’t all that uncommon in the energy sector. Sunedison Inc (NYSE:SUNE) spun off a yieldco in 2014, TerraForm Power Inc (NASDAQ:TERP), and NRG Energy Inc (NYSE:NRG) spun off NRG Yield Inc (NYSE:NYLD) in 2013. TERP and NYLD are both up by double digits year-to-date, and NYLD is up some 90% since coming public.
While a near-doubler in just more than two years is far from a guarantee, the First Solar-SunPower yieldco should be an exciting opportunity for investors. And the partnership should be a longer-term boon to FSLR stock, regardless of last quarter’s revenue miss.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
