First Solar Inc. (FSLR, Financial) was badly hurt in 2016, but the stock has displayed stunning performance this year. The solar panel manufacturer is up more than 90% year to date. The stock performed in a way not seen for a very long time in the solar industry.
The solar panel manufacturer reported earnings per share (EPS) of $1.95, surpassing the analysts' estimates by a wide margin. The company’s pretax restructuring and asset impairment charges were just $1 million, significantly lower compared to the prior-year quarter. As a result, the company was able to deliver robust earnings growth.
Revenue came in at $1.1 billion, again beating the consensus by $223 million and increasing 60% year over year. Over the past five quarters, excluding the most recent, the company’s revenue plunged at an average rate of 25%, but First Solar finally managed to report strong revenue growth in the third quarter.
The primary reason for the high revenue growth was the sale of the California Flats and Cuyama projects, as well as better-than-expected third-party module sales. Moving ahead, the company’s cash and marketable securities increased from $2.2 billion to over $2.7 billion. Its cash flows from operations were $580 million.
First Solar has gained 7.4 gigawatts of net bookings this year. However, it is confusing whether investors should be happy or discouraced by this news. Keeping in mind the existing production capacity, it could take nearly three years for the company to complete these bookings. As a results, customers who want to install panels quickly may turn to other suppliers.
Considering the high demand for solar panels, the company plans to increase its production capacity by 2019. It is heavily investing in upgrading its Series 4 solar panels to Series 6. The total estimated cost for this upgrade is around $1 billion and will take approximately two years to complete.
First Solar's management said it anticipates starting production in mid-2018 in Ohio and late 2018 in Malaysia. As a result, the upgraded solar panels will likely help the company produce panels that will compete effectively with its peers.
There is some concern among solar panel manufacturers that the Trump administration will levy tariffs on foreign solar panels, mainly silicon-based panels, next year, which will increase the cost to import them. If high tariffs are implemented, it will provide First Solar with a massive advantage in the domestic market. If low tariffs are applied, however, it would become necessary for the company to make advanced improvements in its Series 6 panels to compete against silicon-based solar panels.
Summing up
Despite the fact the solar energy market continues to grow at a rapid pace around the globe, solar stocks have been struggling over the past several years. Currently, the majority of growth in the solar sector comes from the U.S and China, but emerging markets such as India will play a vital role in the coming years.
Although First Solar reported impressive third-quarter results, that does not mean it will continue delivering strong results in the coming quarters. Moreover, the company will likely wait for President Trump to announce possible tariffs and will accordingly decide whether to increase the production capacity or not.
2017 has been a good year for First Solar, but 2018 could present an entirely different story as the company does not have enough new projects. The company trades in a cyclical industry, which faces many ups and downs. The company has a massive amount of cash, however, which will help it overcome hard times.
Disclosure: No positions in the stock mentioned in this article.
