On Mar 21, we maintained our Neutral recommendation on vertically-integrated solar manufacturer, First Solar Inc. (FSLR - Analyst Report), following appraisal of its fourth-quarter results.
Why the Neutral Recommendation?
On Feb 27, 2013, First Solar announced fourth-quarter 2012 results. Fourth-quarter 2012 adjusted earnings per share comfortably beat the Zacks Consensus Estimate of $1.75 by 29 cents to clock adjusted earnings of $2.04. It also surpassed the year-ago quarterly EPS of $1.26. On a reported basis EPS came in at $1.74 in the fourth quarter of 2012 versus a loss of $4.78 per share in the year-ago quarter.
First Solar’s quarterly revenues were $1.08 billion, up from $660.35 million in the fourth quarter of 2011. The increase in net sales was primarily due to increased revenue recognition for the Topaz project, and an increase in third-party module sales. Quarterly revenue however fell behind the Zacks Consensus Estimate of $1.32 billion.
Going forward, in the first quarter of 2013, the company expects total revenue in the range of $650 million to $750 million. First Solar expects earnings per share in the range of 70 cents to 90 cents in the first quarter of 2013.
Following fourth-quarter results, only 2 estimates rose over the past 60 days, while 10 estimates were slashed. The Zacks Consensus Estimate for 2013 fell to $3.62 from $4.02 over the last 60 days. Accordingly, First Solar carries a Zacks Rank #3 (Hold). In fact the company has delivered positive earnings surprises in 3 of the past 4 quarters.
First Solar Inc., along with its solar peers, is currently witnessing a steep drop in Average Selling Prices. Also, the current macro scenario does not bode well for the solar industry, which thrives mainly on subsidies and grants. However, First Solar stands out among the pack due to its stable liquidity position, which is in sharp contrast to its cash-strapped peers. In order to counter the weak trend, the company is focusing more on utility-scale electricity power projects. Moreover First Solar is partially compensating for its drop in margins through a major restructuring of its operations initiated in 2012.
Other Stocks to Consider
Other stocks in the solar industry that are currently performing well and have a bright outlook include Canadian Solar Inc. (CSIQ - Analyst Report), Str Holdings Inc. (STRI) and ReneSola Ltd. (SOL - Analyst Report), all with a Zacks Rank #2 (Buy).