When it comes to investing in the solar sector, profitability should be the primary factor in an investor’s decision. For this reason, First Solar (FSLR, Financial) is my favorite pick in the sector. Although the company’s latest quarterly numbers were not great, the company’s long-term future is still intact, and the stock is a strong buy on the pullback.
Moving ahead successfully
First Solar’s CdTe technology has the lowest intrinsic manufacturing expenses. The company clogged delivering updates regarding average module costs almost three years ago. However, according to several forecasts, the company’s module costs could go much lower – to 25 cents per watt by 2019.
As per the report from Bloomberg, it is the first time in three years that the company is making panels for less than China's leading producer – Trina Solar (TSL, Financial). China has lost effectiveness in terms of polysilicon expenditures and technology. It doesn’t have many options left, and its labor charges are escalating rapidly.
For many years, the company enjoyed a cost benefit over polysilicon products. The company’s panels involve less time, labor and energy to manufacture. On the other hand, the company also uses a small amount of semiconductor materials, which was one of the most expensive materials in the infancy of the solar industry.
However, the cost of polysilicon has reached approximately $14 per kilogram, a drop of $461 as compared to the price per kilogram in 2008. In a strategic shift, the company shifted its focus on manufacturing big power plants, shielding itself from straight competition with low-cost Chinese manufacturers.
More prominently, it seems that efficiency delivered by CdTe is likely to surpass the efficiency delivered by multicrystalline silicon and will stay onward.
Focused on enhancing efficiency
First Solar recently reported that efficiency enhancements are likely to speed up later this year as the company is aiming for a full-year lead line efficiency and average efficiency exit of 17% and 16.7%.
Between the end of 2015 and the end of the first quarter, the company’s panel efficiency for its revenue was uniform after escalating from 15.6% to 16.4% in the prior three quarters. However, the efficiency enhancements should speed up all over again as the year proceeds, concluding at 17%. That would result in marginally more efficiency as compared to commodity silicon panels, which is a huge victory for First Solar from a competitive point of view.
Conclusion
Having a competitive advantage should further boost First Solar’s profits, which is why I am bullish on the stock in the long run. The recent pullback is an attractive entry point for new investors.
