In the ever-expanding world of opportunities in the renewable energy space, companies operating in the solar and wind categories have seen increased interest of late following the recent buzz concerning the Paris Climate Accord and the direction most countries around the world are taking with respect to clean energy and climate change.
On the forefront of this revolution are a few companies, each trying to carve out a nice profit while providing essential services to help our planet slow and hopefully stop the current rate of warming. In this article, I’m going to focus on First Solar, Inc. (NASDAQ:FSLR), which is placing a significant emphasis on innovation and product leadership.
Since the company’s earnings call on May 2, FSLR stock has been on quite the tear, rebounding more than 32% from April lows on news that the company’s Series 6 prototype is proceeding with strong traction in key international markets, with installation trails at the company’s U.S. demo site proving to be successful.
FSLR Stock: Prototype Module Installation Trials Promising
Investor concerns over Series 4 inventory levels and the ability of the company to successfully push out its Series 4 product before its Series 6 hits the market have dragged down FSLR stock of late; however, First Solar management did release some encouraging data during the earnings call, which should bolster investor confidence moving into the second quarter of 2017.
Besides posting higher-than-expected net income and revenue numbers supported by the sale of the company’s Moapa project and asset impairment charges. which came in much lower than in the previous quarter, the company also announced that over half of the its remaining Series 4 supply for 2017 and 2018 has been booked, paving the way for a successful Series 6 release.
The ability of FSLR to effectively manage its production to meet its demand over the medium-term will likely be the key driving factor investors will be looking at over the coming quarters. With solar energy now competing in terms of cost with more traditional sources of energy, global demand expectations and forecasts for growth in this industry have begun to pick up.
Still, it remains to be seen how profitable First Solar, and the solar industry in general, will turn out to be as costs are projected to continue to come down for solar panels in the foreseeable future.
First Solar: Fundamentals Remain Strong
One of the things long-term investors looking at solar companies like about FSLR stock is the company’s strong balance sheet and the fact that it has improved fundamentals over time.
Solar technologies are some of the most difficult to try to forecast and value, given the current deflationary price environment related to production efficiencies in this space; however, First Solar’s focus on operational efficiency (hitting 98% capacity utilization this past quarter) and cash flow creation and cash preservation (increased cash on hand to $2.4 billion from $2.0 billion last quarter) provide the company with the ability to innovate and grow its product assortment, in the hopes that long-term profitability will coincide with the rapid (and expensive) technological advancements needed over time.
The ability of companies to continue to innovate and produce superior technologies in the solar energy sector is key. While I would agree that FSLR stock owners should be concerned about the company’s sales prospects with respect to older-gen technology, I would also take the point of view that this is a forward-looking industry with investors less concerned with assessing First Solar’s asset base today, but more concerned with where the company is headed in two to five years from now.
The infrastructure of FSLR’s supplier and customer channels, industry relationships and success in rolling out solar projects at current price levels should translate well, should the company be able to roll out the Series 6 effectively in 2018/2019.
As of this writing, Chirs MacDonald did not hold a position in any of the aforementioned securities.
