We have maintained our Neutral recommendation on First Solar, Inc. (FSLR - Analyst Report) on Sep 26, 2013.
Why the Reiteration?
First Solar caters to a diverse range of customers consisting of investor-owned utilities, independent power developers and producers, commercial and industrial companies, and other system owners. The company’s effort to improve the quality of its products while diversifying its geographical base is noteworthy.
Though First Solar’s solar cells convert sunlight to electricity less efficiently than traditional silicon photovoltaic (PV) modules, thin film PV cells have an advantage in producing electricity even in lower light. The ability to produce electricity under a wide range of light conditions makes these cells attractive for utility companies that require stable large-scale, utility-sized renewable energy production.
Though First Solar is facing intense competition, it will be able to develop economically sustainable businesses as it has established its expertise and developed meaningful PV generation solutions in other areas of the solar value chain, such as, project development, EPC capabilities, and O&M services.
First Solar has a strong balance sheet in the solar industry with a debt-to-equity ratio of 4.7% (Zacks Industry average was 61.8%) and $928.7 million of cash gives it a distinct advantage over its cash-strapped peers.
Despite the positives, we remain concerned about the volatile euro, apprehension over a reduction in German subsidies, and the glut of modules in the market. The structural imbalance between higher production capacity and current and near-term future expected global demand is expected to continue.
This would, therefore, put pressure on pricing and affect results through the remainder of 2013 and into 2014. During the second quarter, the company posted weak results due to lower revenue recognition from the AVSR project.
Other Stocks to Consider
First Solar presently has a Zacks Rank #3 (Hold). Stocks that are worth considering in the space are SunPower Corp. (SPWR - Analyst Report), JA Solar Holdings Co., Ltd. (JASO - Analyst Report) and JinkoSolar Holding Co., Ltd. (JKS - Snapshot Report). While SunPower Corp. carries a Zacks Rank #1 (Strong Buy), JA Solar Holdings and JinkoSolar Holding hold a Zacks Rank #2 (Buy).