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First Solar Could Be a Good Investment, But Conditions Apply

April 17, 2014 | About:
kcpl

kcpl

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Though First Solar (FSLR) had exhibited tremendous performance during 2013, it is having a troubling time in the current fiscal 2014. The stock has declined as First Solar announced weak fourth-quarter financial results. Its revenue was primarily impacted by lower revenue in utility-scale power plants and the company failed to live up to the expectations

Expected to Improve

First Solar is experiencing great improvements in CdTe photovoltaic performance that could perhaps beat the trajectory of conventional silicon technologies. It has not only touched a new milestone of 20.4% CdTe cell efficiency of late, but also broke the record of 19.6% set by GE Global Research in 2013. Hence, First Solar is determined to execute better and improve performance of its production modules and power plants in 2014 with strategic investments in development of advanced technologies, process and cost synergies.

These strategic initiatives have already started generating good returns for the company as its average cost per watt dropped to $0.63 from $0.70 in 2012. Additionally, First Solar has ended with a strong pipeline of solar projects, with total bookings that up by 2.7GW in 2013 and book to bill ratio of just over 1.

First solar has acquired new bookings such as a 150MW AC solar power plant in California and PPAs with member cities of the southern California Public Power Authority for electricity to produce electricity at the 40MW Kingbird solar power plant at Kern Country, Calif. The company has also booked a 22MW project that will be developed and constructed at Pecos Country, Texas.

Moves like this could certainly provide huge opportunities for the company to gain substantial market share in the region, as First Solar plans to complete these projects in the second half of 2014. The company also intends to sell energy into the market in real time and accelerate its revenue from spot market prices, prompted by capacity shortages.

Moreover, First Solar has realized remarkable progress through its strategic efficiency and module manufacturing costs, as module manufacturing costs per watt declined 5% to $0.56 from $0.59 in the last quarter. First Solar has intensively realized it by striking a balance between efficiency gains through improvements and variable cost reductions. However, investors shouldn’t ignore the drawbacks that could come along with an investment in First Solar.

Concerns

On a broader analysis, First Solar is profitable, but its low efficiency business model has restricted the company to beat its peers. First Solar gross margin dropped drastically year over year, from 27.4% to 24.6%, while its plant utilization stood at a mere 83%. Also, conversion efficiency dipped to 13.4% in the last quarter, which usually remains in the range of 15% to 18% for any other quarter.

Being confronted with these complications, the company has well-developed CdTe panels, which have a record 20.4% conversion efficiency. If CdTe doesn’t live up to its expectations, First Solar will concentrate on the other alternatives such as TetraSun. First Solar had acquired TetraSun in 2013. The company says that it has developed a silicon cell architecture which offers 21% efficiency at lower costs. But, First Solar’s lead production line still runs at a 14.2% efficiency, which is low. So, it will take time before things improve for First Solar.

Conclusion

First Solar’s investors are requested to be watchful of the stock till its finds accurate solutions for its low efficiency modules. The stock could be a good long-term buy given the growth of the solar market and First Solar’s dominating position in the industry.


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