First Solar radiates confidence as stock price rises 20%


There’s nothing that Americans love more than a comeback story. And so, on March 19, when First Solar (NASDAQ: FSLR) offered analysts auspicious full-year financial guidance—not just for 2014, but through 2017—U.S. investors were bullish on the news, driving the stock up 20.02% for the month, with a closing price of US$68.64 on March 28.

First Solar predicted net sales of US$3.7 billion to US$4.0 billion for 2014 and consolidated operating income of between US$270 million and US$320 million – the highest profits in nearly three years.

Meanwhile, results for SolarCity (NASDAQ: SCTY) and SunPower (NASDAQ:SPWR) wobbled slightly during March. “As solar stocks go, First Solar was the mover and shaker, for sure,” Pavel Molchanov, research analyst at Raymond James & Associates in Houston, told pv magazine.

“Now comes the hard part,” Molchanov said. "They have to deliver on what they have promised.”

Ambitious plans

Following a period during which its brand and business plan barely stayed in contention in the competitive solar sector, America’s top thin film module manufacturer is now determined to: shift its market focus; sharpen its module efficiency; step up its manufacturing capacity, and supplement its product line with polysilicon panels.

The Tempe, Arizona-based company revealed plans to vigorously ramp up its residential installation business as a hedge against a shrinking U.S. utility scale project pipeline. Although large-scale projects nationwide generated 65% of First Solar’s sales last year, that market is fading fast now that power companies are coming into compliance with their states’ renewable portfolio standards.

According to First Solar CEO Jim Hughes, tapping into the consumer market for solar could increase company sales by as much as 36%. He told Bloomberg: “Quite possibly, it will be our biggest growth segment, but we’re starting from a small base.”

A key enabler of this venture into the residential sector was the acquisition by First Solar last April of San Jose, California-based crystalline PV manufacturer Tetrasun, a rooftop startup. TetraSun’s solar panels are specifically suited for small rooftop systems, as opposed to First Solar’s thin-film panels.

In addition, the company plans to expand further into emerging global utility markets, including the Middle East—with a 52 megawatt (MW) project in Jordan added to its EPC pipeline just this past month—and an eye toward opportunities in Saudi Arabia, India, and South America. Indeed, management said that First Solar currently is competing for a cumulative 45 MW of commercial and industrial thin-film opportunities worldwide.

Production numbers

On the production end, the company proposes to boost its thin-film module efficiency and its manufacturing capacity over the course of the next three years, while reducing production costs.

First Solar told analysts that, in recent research and development efforts, the company had attained a record 17% efficiency for its cadmium telluride (CdTe) thin-film panels, with plans to move the technology into factories over the next three years. Starting at a current average conversion factor of 13.4%, the company proposes to improve efficiency as much as 15.8% by 4Q 2015, up to 18.4% in 2016, and to a maximum of 19.6% in 2017.

Combining these new efficiencies with a transformative manufacturing process developed in partnership with General Electric, First Solar now expects that its total system cost will decline to below US$1 by 2017—representing at least a 36% reduction from the 2013 level of US$1.60.

Still, the question remains: Will that level of efficiency be high enough—and that level of system cost low enough—to beat crystalline PV on the U.S. and world markets? Pavel Molchanov of Raymond James is not so sure. He maintains his “market perform” rating on the First Solar Stock, and in a recent research note, he advised, “It is fair to point out that First Solar has (1) a better balance sheet than most of its major peers and (2) a backlog of legacy projects providing reasonable visibility; [however,] there are also plenty of risks for longer-term profitability, including the unclear evolution of thin film’s economics versus crystalline PV. In particular, we look at the 2015 guidance as quite aggressive.”

For 2015, the company forecast net sales from US$3.8 billion to US$4.3 billion; and for 2016, between US$3.8 billion and US$4.5 billion.


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