Why First Solar Earnings Could Stay Stuck in the Shade
First Solar will release its quarterly report next Tuesday, and with the company having recently made bold predictions about its future, investors have piled into the stock after substantial declines over the past several years. But First Solar earnings might well not deliver good news to new shareholders either next week or well into the future.
First Solar has been a rare success story in the solar industry, overcoming tough industry conditions by focusing on large-scale utility-based projects that are simply too large for most of its smaller competitors to take on. But what really attracted investors to the stock recently were moves to boost its efficiency by buying TetraSun, which they hope will push First Solar into the top echelon of performance and open new markets to the company. Let's take an early look at what's been happening with First Solar over the past quarter and what we're likely to see in its quarterly report.
Stats on First Solar
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past Four Quarters
Source: Yahoo! Finance.
What's behind the big drop in First Solar earnings this quarter?
Analysts have chopped their calls on First Solar earnings rather dramatically in recent months, slashing June-quarter estimates by more than half. Yet they see the long-term impact on earnings as minimal, actually raising 2014 estimates by about 1%. The stock has generally maintained its positive response to enthusiastic investors, rising about 8% since late April.
First Solar's first-quarter report disappointed investors who had hoped for even more from the company after its big April announcements. Falling backlog of major projects and a big drop in gross margins that put the company in line with rival SunPower's margin levels reflected the lack of interest in lower-efficiency solar modules, with SunPower benefiting from its long-held emphasis on high-efficiency production.
In particular, First Solar's efficiency disadvantage has largely kept it out of the fast-growing residential and small-scale commercial side of the solar business. With Solar City and SunPower both growing their exposure to the residential solar market through leasing and other financing programs, they've not only found new outlets for modules but are building a more comprehensive solar-services business that offers higher margins and deeper relationships with customers. Moreover, if residential solar takes hold, it could threaten the utilities that make up First Solar's major customer base.
One unanswered question is what First Solar plans to do with $427.7 million in cash proceeds from a sale of 9.45 million shares of its stock in June. With both SunPower and SolarCity also having raised capital recently, it's clear that capital demand is strong, but what First Solar actually does with that money will go a long way toward establishing its strategic direction going forward.
In the First Solar earnings report, watch for the company to fill in the blanks on those strategic details, as well as commenting on news last month that China plans to boost its solar capacity in the next couple of years to help support its domestic solar producers. First Solar had looked forward to a shakeout in the Chinese solar industry putting it in a better competitive position, but it might actually produce better earnings if it focuses its efforts instead on catching up in lucrative areas like residential solar.
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The article Why First Solar Earnings Could Stay Stuck in the Shade originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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