First Solar (FSLR) popped nearly 13% in after-hours trading Thursday after reporting better-than-expected third-quarter earnings. Its rival, Solar City (SCTY), fell off a cliff after simultaneously reporting its own Q3 earnings, plummeting 20% after hours.
That’s a stark difference for two companies that are so similar. Both First Solar and Solar City are leaders in the solar energy industry, have comparable market caps ($5.7 billion for FSLR, $2.9 billion for SCTY) and have been growing revenues at an impressive clip.
But entering Thursday’s dual earnings reports, FSLR looked like the better buy. And that’s even more true in the wake of Thursday’s results.
First Solar Earnings Shine
What spurred FSLR to such a huge post-earnings bump? Here are the highlights:
- Record revenues of $1.27 billion, up 43% from a year ago
- Earnings of $3.38 per share, nearly quadrupling year-ago EPS of 87 cents, and more than double what analysts were expecting
- Fourth-quarter EPS guidance of $4.30 to $4.50, well ahead of the $3.43 analysts had predicted
First Solar’s monster quarter does come with two caveats: A one-time sale of the company’s 300-megawatt Desert Stateline project in California to Southern Co. (SO) played a big part in the record revenues, and a mysterious tax matter related to an unnamed “foreign jurisdiction” could trim $40 million from its total earnings.
Still, that doesn’t change the sunny fourth-quarter forecast, nor the fact that the company’s sales have now improved year-over-year in three of the past four quarters.
Solar City’s earnings were an entirely different story. The company, which is the top solar panel installer in America, reported a loss of $2.10 per share, and expects fourth-quarter losses to be even worse ($2.60 to $2.75) despite a 95% increase in sales.
Despite its huge after-hours run-up, FSLR trades at just 18 times earnings. SCTY, of course, has no earnings.
Given the Q4 guidance disparity, and the huge gap in profitability, FSLR is the much safer play if you’re wanting to invest in the budding solar energy sector. Its chart looks much better — First Solar stock is up 41% since the end of September, and is now trading well above its 50-day moving average. SCTY, meanwhile, is down 44% in 2015, and hasn’t traded above its 50-day moving average since early August.
Value investors might see SCTY as the better buy. But the fourth-quarter earnings downgrade doesn’t portend well — especially not when you consider that FSLR just raised its fourth-quarter earnings guidance by a wide margin.
Bottom Line on FSLR Stock
Investors, by nature, tend to overreact.
First Solar stock was likely overbought after-hours yesterday, so don’t be surprised if it dips a bit in the days ahead. For the long term, however, its fundamentals look strong, and the stock still trades at a very reasonable valuation.
SCTY is coming off a bad quarter and anticipates things getting even worse next quarter. Its sales growth is impressive, but the lack of earnings sticks out like a sore thumb, especially when compared to one of its chief competitors.
Still well shy of its April highs near $65, FSLR is worth buying on any dip to see how far this post-earnings bump lasts.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities
