First Solar, Inc. (NASDAQ:FSLR) is having a rough go of it. FSLR stock has plummeted as much as 17% since reaching its February high of $38.50, and now the solar stock is being booted from the S&P 500.
Yes, the residential solar installer recently beat Wall Street’s fourth-quarter estimates on both the top and bottom lines, and raised its sales guidance for 2017.
However, thanks to a pre-tax charge of $729 million during the quarter, the company reversed last year’s Q4 operating income of $131.82 million to a loss of $765.41 million. What’s more, investors realized that even though First Solar did beat consensus estimates on the top line with $412.76 million, it still marked a year-over-year decline of 56% from revenue of $942.32 million a year ago.
And yet, there’s reason to believe FSLR stock could still put up huge gains before 2017 is through.
Why the Trouble in First Solar?
First Solar’s business has been hurt by several factors, including weak economic concerns in China, resulting in slow on solar panel purchases and causing a rise in First Solar’s inventory. This was one of the reasons competitors such as Tesla, Inc. (NASDAQ:TSLA) opted to acquire SolarCity, shielding the latter from the negative effects of the industry.
Aside from these factors, it hasn’t helped that President Donald Trump — unlike former President Obama — hasn’t embraced renewable or green energy to the extent he has supported the coal industry.
Nevertheless, with SunPower Corporation (NASDAQ:SPWR) making some optimistic comments about the state of the solar industry, now’s an ideal time to place a bet on FSLR stock, which closed Friday at $32.40, losing 6.4% for the week. At some point, solar energy — which continues to gain global acceptance as it decreases in costs — can’t be avoided any longer.
And this is where First Solar’s restructuring efforts — including plans to cut about 27% of its workforce — make sense.
FSLR, which has now beaten earnings estimates in seven straight quarters, sees 2017 net revenue in the range of $2.8 billion to $2.9 billion, which is above its prior range of $2.5 billion to $2.6 billion and higher than the $2.53 billion analyst were looking for. The upbeat revenue forecast means First Solar expects to realize revenue from — among others — the 250-megawatt Moapa project, near Las Vegas.
Plus, the company is now diverting cash toward its Series 6 solar modules ahead of schedule to 2018, which offers significantly lower capex than Series 4, while abandoning plans for the Series 5 product. And while the Series 6 products offers more risk, First Solar’s nearly $2 billion in cash on the balance sheet (or $19 in cash per share) gives it plenty of time to get it right.
Bottom Line for FSLR Stock
After flaming out in 2016, losing some 51% of its value, there’s still a lot to like with First Solar stock, which has fallen 56% from its 52-week high of $74.29.
Assuming the company can execute on its workforce reduction, lowering costs, while accelerating its Series 6 solar modules, FSLR stock could rebound above $50 in the next 12 to 18 months. That would come out to roughly 55% returns — a killing for investors who are looking for a spark in their portfolios.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.