Late Bloomer First Solar Needs a Tech Refresh

Having covered First Solar (NASDAQ:FSLR) for a decade, it was gratifying to see the solar panel company finally grow up. First Solar stock was due to open Dec. 3 at $90 per share. It’s up 62% so far in 2020. It now sports a market cap of $9.6 billion, a price-earnings ratio of 43.

Piggy bank in front of solar panel infrastructure
Source: Shutterstock

Expectations are high. First Solar is on track to do $3.5 billion of business this year, up from $3 billion last year. September quarter sales of $928 million were up 43% over a year ago. Earnings exploded to $1.45/share for the September quarter, $2.65/share for the year so far.  The “whisper number” for December is $1.24/share of earnings. We’ll find out Jan. 26. That $4/share of earnings translates into a January P/E of 22.5.

Does this mean you should give your nephew some shares of First Solar instead of the Amazon (NASDAQ:AMZN) Twitch subscription they want?

Not So Fast

This year may have been an outlier.

The cost of solar power has only recently fallen below that of alternatives, like building a natural gas plant. Trump’s China trade war also kept cheaper Chinese panels off the U.S. market.

First Solar wants to keep the tariffs, accusing the Chinese of “dumping” panels. But Morgan Stanley (NYSE:MS) double-downgraded the stock after Biden won. So did Raymond James. Barclays (NYSE:BCS) now calls First Solar an underperformer.

That’s not just because the tariffs may go away. A Republican Senate would also stop anything like a Green New Deal.

But the situation isn’t that dire. Solar power is booming, even in Texas, where solar can offset the last decade’s wind boom. Solar power peaks in the afternoon, wind at night. A balanced approach maintains the grid and reduces the need for battery storage.

What could keep the boom going is a federal tax credit due to expire in 2022. Biden is expected to support an extension and, given that Texas is a huge user of the credits, so may Texas Republicans.

The Next Wave

My problem with First Solar is its technology.

First Solar makes thin film panels from cadmium telluride, rather than hard panels with silicon. The panels are perfect for utility-scale installations. The company said a year ago that production is sold out into the second half of 2021, during which it expects to install 6.5 GWatts of power.

By focusing solely on panel production for large projects, First Solar kept costs down and profits up.

But there’s more than one way to harvest the sun. Solar fabrics, flexible sheets imprinted with nanoparticles, could make any surface a solar panel. Tesla (NASDAQ:TSLA) is already cutting installation costs with “solar shingles.” Building-Integrated Photovoltaics (BIPV) may make panels obsolete.

New materials like perovskites, plastics, and graphene are coming to the market. The materials can be combined to create solar panels that last longer.

The Bottom Line on First Solar Stock

First Solar is not helpless in the face of these trends.

The company had $1.6 billion of cash at the end of September, against just $400 million of long-term debt. It has gotten more than $350 million in operating cash flow so far in 2020. Its capital budget is just $100 million/quarter.

The company has some choices to make. If it began buying back stock or instituted a dividend, I would get out. There are opportunities in this market that need to be seized. The free ride of cadmium-telluride among solar materials is going to end.

As the granddaddy of America’s solar revolution, First Solar can become the daddy of the next generation. Or it can retire. When it decides which way to go, I’ll know whether to invest in it.

At the time of publication, Dana Blankenhorn had a long position in AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn.

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