We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
First Solar (FSLR): Are Better Times Ahead for the Stock?
Read MoreHide Full Article
The solar industry witnessed tough times in 2016, even hurting industry leaders like First Solar Inc. (FSLR - Free Report) . Even though First Solar's 51.4% loss in 2016 was narrower than the Zacks categorized Solar industry's decline of 58.8% backed by the company’s continued focus on maintaining a competitive edge and consolidation.
However, its performance has deteriorated significantly since the beginning of 2016. As a result, the stock, which traded at over $70.00 in early 2016, fell 33.8% in the second half of the year.
Reason for the Fall
First Solar has been hurt by a number of factors including overall difficult conditions in the alternative energy space and falling oil prices. In Nov 2016, the company announced a massive restructuring initiative, under which it will reduce the headcount at its domestic and international manufacturing facilities. Additional layoffs will take place in administrative and other areas.
The unexpected victory of Donald Trump added to the uncertainties surrounding this industry. Instead of supporting the renewable sector with any kind of incentives, the President-elect has promised to revive coal. This had a major impact on not only First Solar but other solar companies like SunPower Corp. (SPWR - Free Report) and Canadian Solar Inc. (CSIQ - Free Report) as well. Wind companies like Vestas Wind Systems A/S (VWDRY - Free Report) were not able to escape the impact either.
During the third-quarter earnings call, First Solar lowered its revenue expectations for 2016. The company also trimmed its projection for panel shipments. Investors reacted negatively to the news.
First Solar's Plans & Outlook
In the next two years, First Solar is going to go through a major transition. In Nov 2016, the company announced that it will ramp up the production of Series 6 solar modules in 2018, with expectations of producing roughly 3.0 gigawatts ("GW") in 2019. During 2017 and 2018, its existing production facilities will be converted to support Series 6 production,and Series 4 and 5 solar modules will be eventually discontinued. This will help the company reduce costs and increase efficiency of each panel installed.
Due to the transition, the company expects to incur restructuring and asset impairment charges of $500–$700 million, which includes a cash impact of $70–$100 million. Additional costs incurred in 2016 include $475–$585 million for asset impairment related to Series 4, Series 5 and stored manufacturing equipment, and charges for the cancellation of open purchase orders.
The cash impact is anticipated to range between $50 million and $70 million. The company expects costs of up to $80 million for a non-cash impairment of goodwill and $10–$15 million of cash severance charges in 2016, while in 2017, it projects $15–$20 million of other charges.
For 2017, First Solar expects revenues in the band of $2.5–$2.6 billion with gross margin between 12.5% and 14.5%. Operating income is expected to be $40–$80 million. The company expects the operating cash flow in the $550–$650 million band. Panel shipment is anticipated in the 2.4−2.6 GW band. For the fullyear, First Solar now envisions breakeven results to earnings of 50 cents per share.
Impressive Long-Term Outlook
Though First Solar's near-term prospects don’t appear impressive, it has significant growth potential for the long run. This could bebecause of robust long-term demand projection for solar energy. According to the fourth-quarter 2016 report published by GTM's research team, although worldwide demand will decrease about 7% in 2017, annual total installation is estimated to grow at an average rate of 12% over the next five years.
Moreover, these projections could be revised upward in the future. In fact, 2021 estimates have been raised by 4GW since the third-quarter 2016 report.
Factors that will Drive Growth
First Solar is able to develop economically sustainable businesses backed by its expertise in photovoltaic ("PV") generation solutions as well as in other areas of the solar-value chain, such as project development, engineering, procurement and construction (EPC) capabilities and operation & maintenance (O&M) services. The company continues to focus on retaining its competitive edge and aims to further consolidate its position in the market.
First Solar's long-term industry-leading position has allowed it to generate profits consistently, in turn facilitating a strong balance sheet on the back of net cash balance of around $1.5 billion.
Image: Bigstock
First Solar (FSLR): Are Better Times Ahead for the Stock?
The solar industry witnessed tough times in 2016, even hurting industry leaders like First Solar Inc. (FSLR - Free Report) . Even though First Solar's 51.4% loss in 2016 was narrower than the Zacks categorized Solar industry's decline of 58.8% backed by the company’s continued focus on maintaining a competitive edge and consolidation.
However, its performance has deteriorated significantly since the beginning of 2016. As a result, the stock, which traded at over $70.00 in early 2016, fell 33.8% in the second half of the year.
Reason for the Fall
First Solar has been hurt by a number of factors including overall difficult conditions in the alternative energy space and falling oil prices. In Nov 2016, the company announced a massive restructuring initiative, under which it will reduce the headcount at its domestic and international manufacturing facilities. Additional layoffs will take place in administrative and other areas.
The unexpected victory of Donald Trump added to the uncertainties surrounding this industry. Instead of supporting the renewable sector with any kind of incentives, the President-elect has promised to revive coal. This had a major impact on not only First Solar but other solar companies like SunPower Corp. (SPWR - Free Report) and Canadian Solar Inc. (CSIQ - Free Report) as well. Wind companies like Vestas Wind Systems A/S (VWDRY - Free Report) were not able to escape the impact either.
Looking for the Best Stocks for 2017? Be among the first to see our Top Ten Stocks for 2017 portfolio here.
During the third-quarter earnings call, First Solar lowered its revenue expectations for 2016. The company also trimmed its projection for panel shipments. Investors reacted negatively to the news.
First Solar's Plans & Outlook
In the next two years, First Solar is going to go through a major transition. In Nov 2016, the company announced that it will ramp up the production of Series 6 solar modules in 2018, with expectations of producing roughly 3.0 gigawatts ("GW") in 2019. During 2017 and 2018, its existing production facilities will be converted to support Series 6 production,and Series 4 and 5 solar modules will be eventually discontinued. This will help the company reduce costs and increase efficiency of each panel installed.
Due to the transition, the company expects to incur restructuring and asset impairment charges of $500–$700 million, which includes a cash impact of $70–$100 million. Additional costs incurred in 2016 include $475–$585 million for asset impairment related to Series 4, Series 5 and stored manufacturing equipment, and charges for the cancellation of open purchase orders.
The cash impact is anticipated to range between $50 million and $70 million. The company expects costs of up to $80 million for a non-cash impairment of goodwill and $10–$15 million of cash severance charges in 2016, while in 2017, it projects $15–$20 million of other charges.
For 2017, First Solar expects revenues in the band of $2.5–$2.6 billion with gross margin between 12.5% and 14.5%. Operating income is expected to be $40–$80 million. The company expects the operating cash flow in the $550–$650 million band. Panel shipment is anticipated in the 2.4−2.6 GW band. For the fullyear, First Solar now envisions breakeven results to earnings of 50 cents per share.
Impressive Long-Term Outlook
Though First Solar's near-term prospects don’t appear impressive, it has significant growth potential for the long run. This could bebecause of robust long-term demand projection for solar energy. According to the fourth-quarter 2016 report published by GTM's research team, although worldwide demand will decrease about 7% in 2017, annual total installation is estimated to grow at an average rate of 12% over the next five years.
Moreover, these projections could be revised upward in the future. In fact, 2021 estimates have been raised by 4GW since the third-quarter 2016 report.
Factors that will Drive Growth
First Solar is able to develop economically sustainable businesses backed by its expertise in photovoltaic ("PV") generation solutions as well as in other areas of the solar-value chain, such as project development, engineering, procurement and construction (EPC) capabilities and operation & maintenance (O&M) services. The company continues to focus on retaining its competitive edge and aims to further consolidate its position in the market.
First Solar's long-term industry-leading position has allowed it to generate profits consistently, in turn facilitating a strong balance sheet on the back of net cash balance of around $1.5 billion.
Zacks Rank
First Solar currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.