First Solar Results Shine

First Solar Shines with Strong Results

First Solar, Inc. (FSLR - Analyst Report) reported financial results for the 1st quarter ended March 28, 2009.

Net income for the 1st quarter of fiscal 2009 was $164.6 million, or $1.99 per share on a fully diluted basis, up 24% from $132.8 million, or $1.61 per share on a fully diluted basis, for the 4th quarter of fiscal 2008 and up approximately 250% from $46.6 million or $0.57 per share on a fully diluted basis for the 1st quarter of fiscal 2008.

The company generated quarterly revenues of $418.2 million, up 112% from $196.9 million in the 1st quarter of fiscal 2008. The increase in net sales in the reported quarter was due to a 147% increase in the MW [megawatt] volume of solar modules sold due to strong demand for solar modules in both the U.S. and European markets.

The increase in MW volume of solar modules sold is attributable to the full production ramp of the first two plants at the Malaysian manufacturing center, commencement of product shipments at the third plant of the Malaysian manufacturing center and continued improvements to the manufacturing process.

In addition, the company increased the average number of sellable watts per solar module by 2.5% during the reported quarter compared with the three months ended March 29, 2008. Also, the average selling price decreased by approximately 13% during the three months ended March 28, 2009 compared with the three months ended March 29, 2008, mainly due to an 8% reduction in average selling price due to annual contractual price declines that took effect in the reported quarter and amendments made to Long-Term Supply contracts with certain customers.

In addition, the average selling price was adversely impacted by 5% due to an unfavorable decline in the foreign exchange rate between the U.S. dollar and the Euro.

During the three months ended March 29, 2008, 61.8% of net sales resulted from sales of solar modules to customers headquartered in Germany.

The increase in cost of sales was due to higher production and sales volumes, which resulted from the commencement of production at four plant Malaysian manufacturing center.

Guidance for fiscal 2009: First Solar also reaffirmed its fiscal 2009 net sales guidance range of $1.9 to $2 billion.

Looking ahead, we continue to like the First Solar story and the growth potential for the solar industry in the aggregate. Over the near-term, on the upside, we support management’s long-term focus on capacity build-out and technological enhancements, rather than striving for optimal near-term results.

First Solar’s growth story will continue with its order backlog surpassing $6 billion, higher capacity online in the Malaysia and Ohio facilities, higher volumes in the German market, declining cost per watt, recent all-stock acquisition of OptiSolar, and new utility scale PV system deployments in the United States.

However, a weak Euro in light of the company’s focus on Europe, declining governmental subsidies for solar initiatives, tight credit markets, and the modules oversupply situation in the market may partially hamper short-term growth.

Also, the company’s initiative to finance its customers to avoid order cancellations is a risky proposition. Previously, the company’s reliance on low cost thin-film cells helped it avert a silicon shortage, which adversely impacted the bottom-line of other solar companies. As a result, First Solar was consistently able to produce and sell its solar cells for a lower cost than its competitors.

Uncertainty surrounding the long-term alternative energy policy in the U.S. and Germany may also present some downside risk.

While FSLR currently trades at a premium to its comparable peers in the alternative energy industry, at the upper-end of each range of relative price-to-earnings, price-to-book value, price-to-sales and price-to-cashflow, such premium valuation metrics may be justified by the company’s historical record of strong and consistent top-line and bottom-line growth, as well as long-term EPS growth expectations significantly above most comparable public companies in the alternative energy space.

As with most alternative energy companies, FSLR is currently valued, in part, on optimistic future expectations, and if the company lives up to the expectation and the solar power industry evolves globally as expected, FSLR may prove to be a great long-term investment. Accordingly, we maintain our BUY recommendation with a six-month target price of $225. Price appreciation to our near-term valuation target represents 17.4% upside potential.

First Solar, Inc. designs, manufactures, and sells solar electric power modules using a proprietary thin film semiconductor technology. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. The company was founded in 1999 and was
incorporated in 2006.