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Bear of the Day: First Solar (FSLR)

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American solar panel manufacturer First Solar (FSLR - Free Report) has earned our Bear of the Day designation today for a variety of reason, namely its sluggish chart patterns and down-trending earnings estimates.

First Solar designs and manufactures solar modules with an advanced thin film semiconductor technology. The company faces intense competition from makers of crystalline-silicon solar modules, as well as manufacturers of other types of solar modules and PV systems that are comparable in terms of reliability and price per watt.

It is worth noting that, although First Solar does have a slight advantage in terms of price per watt right now, its stock has underperformed the industry in the past year. That’s largely due to recent headwinds, including rising production start-up costs. In the second quarter, First Solar incurred production start-up costs of $24.4 million, up from just $8.4 million in the prior-year quarter.

This put a dent in the company’s earnings results. First Solar reported a loss of 46 cents per share in that period, missing the Zacks Consensus Estimate of a loss of just two cents. That result did not comparable favorably to the adjusted profit of 64 cents per share First Solar posted in the year-ago period. Revenue in the quarter was also down to $309 million from $623 million.

Soft performance in the most recent quarter inspired analysts to revise their estimates for future periods to the downside. The Zacks Consensus Estimate for First Solar’s full-year earnings has slumped nine cents over the past 90 days, while the Zacks Consensus Estimate for its next fiscal year has dropped four cents in that time. This earned the stock a Zacks Rank #4 (Sell) this week.

Earnings and revenue for the next-to-be-reported quarter are expected to decline as well. Sales are expected to rebound in fiscal 2019, but early estimates are calling for revenue of that $3.02 billion—just a notch higher than the $2.94 billion seen in 2017.

In the ever-competitive solar business, it is important for companies to establish consistent growth, especially as they look to leverage advantages like selling prices. I’m just not seeing that type of consistency in First Solar right now.

Investors are paying about 17.3x forward 12-month earnings for FSLR right now, which is a slight discount to the industry average of 18.5x. However, even from a value perspective, we would rather pay a slight premium for a stock with a more positive earnings trend.

But perhaps most troublesome is FSLR’s recent chart pattern. The stock simply has not been able to get anything going over the past few months, and often that can signal bad news for investors as traders refuse to help out.

Here’s a look at how the stock and its 50-day and 200-day moving averages have looked over the last six months:

First of all, you never like to see the 200-day move above the 50-day, and it seems like that crossover in early July did mark the start of a move from about $55 to below $50 in about two months.

We also saw FSLR meet resistance at its 50-day line twice during this downtrend. This shorter-term moving average can act as a key support or resistance line for traders, and the fact that it rejected a move back over the 50-day twice does not make me optimistic.

I do think that the long-term potential of the solar business is unquestionable, but this industry is in the bottom 5% of our Zacks Industry Rank right now. There are currently no stocks in the group with over a Zacks Rank #3 (Hold).

#3 (Hold)-ranked module/cell manufacturers include Canadian Solar (CSIQ - Free Report) , Hanwha Q CELLS HQCL, and Sunpower (SPWR - Free Report) .

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