For many of the solar stocks, their latest earnings reports have been a mixed bag. A combination of higher costs, dwindling project pipelines and lower prices for substitute energy sources have sort of crimped the sector’s near-term mojo. That’s resulted in some nasty drops when it comes to solar stock share prices.
However, for major solar king-pin First Solar, Inc. (NASDAQ:FSLR), a few major deals might give it the edge this earnings season. Those major announcements should help keep shares of FSLR stock afloat after it reports earnings after the bell on Tuesday.
But what exactly are those deals and what should First Solar report? Here’s a preview of FSLR’s earnings and how it plans to stay on top of the solar crowd.
FSLR Winding Down Legacy Projects
The unfortunate thing for First Solar going into its latest earnings report is that several of major projects have been completed and no longer will driving earnings for the solar firm. FSLR has moved beyond just being a panel manufacturer and has plowed head-first into the utility-scale market.
By designing and building projects for utilities and other large-scale consumers, FLSR has been a champion on the earnings front and has been able to survive the glut of cheap Chinese-made panels on the solar market.
FLSR’s 550 MW Desert Sunlight and the 550 MW Topaz projects were completed or were about to finished during the fourth quarter. Those large legacy facilities have been two key earnings drivers due to their higher margins.
The key for the two facilities is that First Solar had been self-developing the projects. Basically, the firm was holding the solar farms on its own balance sheet while they were being completed in order to capture the maximum value when sold. Buyers would be able to purchase a fully operational solar project with proven production rather than something that is ordered and built.
Since they are completed and not sold yet, Desert Sunlight and Topaz should only provide a small bump in revenues for FSLR, rather than their previous big-time contributions.
Although that may not matter for FSLR, which is expected to announce some major deals and revisions to its guidance during the fourth-quarter earnings report.
During the last three months, First Solar sold its 150 MW Solar Gen 2 facility to utility Southern Co (NYSE:SO). That sale should help reduce the revenue impact of the loss of the legacy projects. FSLR is also expected to grow its backlog of new solar projects as well as improve the efficiency of its panels. For the third quarter, panel efficiency was recorded at 14.2% — a 0.9% increase year-over-year. Analysts expect that amount to increase during the last reported quarter.
However, the real driver this earnings will be two big deals.
First, FSLR is planning on opening a manufacturing facility in India to build-out solar capacity in the nation. First Solar has plans to build 5,000 megawatts worth of solar projects in India by 2019. India is considered one of the major growth regions for solar energy and has pledged make solar one of its major energy contributors by increasing capacity by more than 33%. Any news on the Indian front will be a net-positive for FSLR.
Secondly, First Solar has recently signed a deal with tech superstar Apple Inc. (NASDAQ:AAPL). FSLR will build a plant that will power Apple’s facilities in California over the next 25 years for $848 million. The California Flats Solar Project covers 2,900 acres and under the terms of the deal will provide Apple with 130 MW of solar power for its Apple’s 52 stores in the state and its data center. The remaining 150 MW will go to utility PG&E Corporation (NYSE:PCG) under a separate agreement.
All in all, the deal is the largest solar agreement in history to provide clean energy to a single commercial end-user as well as the first time FSLR has sold a direct power-purchase agreement to a single commercial/industrial firm.
With these deals in tow, FSLR should report earnings per share of $0.76 and $1.28 billion in revenue. That’s actually slight decrease in EPS versus the previous reported quarter as the realization of the two legacy projects won’t be included, but it is still higher than what was originally estimated. Additionally, long-term guidance should be better for FSLR shares.
Wait To Buy FSLR Stock
Shares of FSLR stock have risen about 10% this year, mostly because of the Apple deal. That’s made it kind of pricey in the short term. However, the longer term is pretty sunny for First Solar and FSLR stock shares.
As we’ve seen across the solar sector, the recent spate of dour earnings reports have sent shares of rival firms downwards despite rosier long-term pictures. For FSLR, this shouldn’t be any different.
The decrease in earnings per share will cause FSLR stock to fall. It always does.
And yet, the outlook for the next few years is still quite bright. As the California Flats facility comes online as well as other backlogged projects, FSLR should be able to really begin to generate cash, earnings and regain its mojo back. Gains in panel efficiency should help it enter the newly lucrative residential rooftop market. Additionally, the growth in in India will be a driver longer term. Already, FSLR has about 20% of that market.
All of these things are great for investors.
And you should get an opportunity to snag shares of FSLR cheaper when it reports. For those looking to add a dose of solar to their portfolios, First Solar is still one of the best — longer term, that fact is still in place.
As of this writing, Aaron Levitt held no positions in any of the aforementioned securities.
