First Solar (FSLR) stock fell as much as 11% on Friday after the solar energy solutions company reported third-quarter results that fell far short of analyst expectations. First Solar logged adjusted earnings per share of 61 cents on revenue of $889 million in the period. Wall Street had hoped for more, with consensus estimates calling for EPS of 63 cents on revenue of $1.05 billion.
But that wasn’t the only reason FSLR stock got a case of the slumps. CEO Jim Hughes told investors that unlike peers SunEdison Inc (SUNE) and NRG Energy Inc (NRG), First Solar won’t be spinning off its solar power plant operations into another entity called a “yield co.”
This peeved investors.
First Solar is an incredibly volatile stock, and investors may recall last quarter’s abject earnings miss, which also saw FSLR stock take a beating, although then it was to the tune of 16%. Yesterday’s third-quarter results weren’t nearly as miserable as last quarter, when EPS came in at 4 cents versus a consensus estimate of 33 cents.
But FSLR could’ve used a boost, and Wall Street thought a spinoff in the form of a yield co could’ve been the right move. Investors who want to see FSLR spin off its power plant division think a distinct yield co could unlock value for shareholders. After all a First Solar yield co would boast fairly easy-to-project cash flows, a result of straightforward contracts with utilities companies to provide them power for a set number of years.
Yield cos launched by rivals SUNE and NRG have had decidedly mixed performance in the stock market since going public. SunEdison’s spinoff, TerraForm Power Inc (TERP) surged 32 percent on its first day of trading in July. But if you didn’t get in early on the first day, you missed out. TERP stock is down 15% from its first-day close. TERP currently pays a 3.2% dividend yield.
Shares of NRG Energy’s yield co, NRG Yield Inc (NYLD), on the other hand, are up about 75% from the stock’s opening day closing price. NYLD currently pays a 3.1% dividend yield.
It’s important for FSLR shareholders to put things in perspective here and remember that just because First Solar didn’t spin off its utility-facing business into its own distinct entity, if you own FSLR stock you still have direct exposure to that line of business. On top of that, First Solar’s full-year 2014 forecasts really weren’t that shabby! Sure, it revised revenue estimates lower, but gross margins and operating income are both expected to rise.
First Solar will be just fine. Ignore the noise today.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.