On Monday evening, one of the most anticipated earnings reports was announced by First Solar (NASDAQ:FSLR). In the last few years, the great majority of solar energy companies have been fighting for their very survival with very few actually posting a profit. First Solar was one of the companies that posted a loss for two years in a row (in 2011 and 2012) and many people were questioning whether the company would survive in the long run. As a result, First Solar's market value fell from $27 billion to $4 billion based on the same worries. The company's share price is currently known to have a high volatility and its latest results may add to the volatility. Now, let's take a look at the company's latest quarter.
The company failed to beat analyst estimates as it posted a profit of 69 cents per share excluding one-time items, whereas the analysts were expecting it to post a profit of 75 cents per share. Even though the results missed analysts' expectations, they were much better than the loss of $5.20 per share posted by the company in the same quarter last year. First Solar generated $755 million in revenues whereas the analysts were expecting it to generate $726 million. Year to year, the company's revenue represents a growth of 52%.
First Solar was able to continue cutting costs and it sold its entire inventory in the quarter. After a large number of solar energy companies went bankrupt in the last two quarters, there is less competition for First Solar to worry about. Furthermore, the company cut its production capacity significantly during the same period, which helped it manage its inventory easier.
The company has a pipeline of 5,500 megawatts of prospective deliveries for the near future. Of this pipeline, 700 megawatts come from projects that are near the completion stage. First Solar expects the current quarter to be even better than the last quarter as it will continue to cut costs while increasing production. Some of the panels will be used by the power plants that are owned by First Solar whereas other panels will be delivered to a number of clients.
The company is now expecting to grow in a larger number of geographical locations than ever, as it recently added areas such as South America and the Middle East to its portfolio. In the Middle East countries like Saudi Arabia (which happen to get plenty of sunlight) are expected to spend billions of dollars on solar energy in the next few years.
Year-to-year, First Solar was able to cut its operating expenses by 20%. The company can now produce each watt for as cheap as 69 cents. This is slightly up from last quarter's cost of 68 cents per watt; however, the number is significantly better than 2009's price of $1 per watt. In fact, even the price tag of $1 per watt was perceived to be a difficult achievement a few years ago. First Solar has made a lot of progress in lowering cost of the electricity it produces from solar panels.
For the full year, the company reiterated the guidance it gave last month where it expected to generate $3.8-$4.0 billion in revenues, $4.0-$4.5 per share in net earnings. Furthermore, First Solar was able to improve its balance sheet slightly and the company currently enjoys $1.01 billion of cash and $562 million of debt. Excluding cash, First Solar currently trades for 8.5 times its earnings guidance for the full year.
Overall, despite failing to beat analyst estimates and falling behind last quarter (which was an outlier) First Solar's last quarter was successful. The company has demonstrated that it is able to execute and continue to grow while cutting costs. It is estimated that a great majority of solar energy companies will not be in business for long, which means there will be less competition for First Solar to worry about.
In the after-hours, First Solar's share price fell by as much as 4% within minutes of announcing last quarter's numbers. Later on, the share price jumped up by 4%; however, the share price was pretty flat (compared with the end of regular trading price) towards late evening. Investors seem to have mixed feelings towards the company's quarter.
If First Solar can continue to execute its plan and meets the numbers in its guidance for the full year, the upside potential in the share price will be around 25-35%. In fact, this is the first time I am seriously considering buying shares of this company. This is one of the few solar energy companies where the management seems to know how to run the company.