First Solar (FSLR), one of the world's largest solar panel manufacturers and project developers, has had a good year. The company's stock price is up by around 80% year-to-date on the back of growing global solar demand, strong execution on its utility scale-projects as well as improving efficiencies, which have helped margins. Through the year, the company also took some strides toward improving its manufacturing technology and de-risking its product portfolio through some acquisitions. Here is a brief overview of First Solar's 2013.
We have a $58 price estimate for First Solar, which is slightly above the current market price.
Improving Financial Performance and Position
First Solar's financial performance has been improving over the last few quarters aided by growing global solar demand as well as strong execution of the company's large-scale solar projects. For the first nine months of this year, the company's operating margins stood at around 12% versus an operating loss during the same period last year. First Solar also remains one of the healthiest companies in the solar industry. At the end of Q3 2013, the company's cash and cash equivalents stood at around $1.2 billion while total debt fell to around $230 million, which is relatively low when compared to most other tier-1 solar manufacturers.  Having a strong financial position is an asset for solar project developers like First Solar since customers signing long-term contracts typically look at the financial stability of the vendor.
Systems Business: Strong Execution, But Pace Of New Orders May Need To Pick Up
First Solar's systems business continued to be the driving force behind the company's performance this year, as construction on the Topaz, Desert Sunlight and Agua Caliente projects (which together have a capacity of close to 1.4 GW) bolstered results. (Form 10-Q) The projects business, which now accounts for around 85% of First Solar's revenues, has proved lucrative for the company since it entails supplying solar panels along with the related engineering, procurement and construction services.
While execution has been strong, we believe that the company will need to ramp up its new bookings in order to grow the systems business going forward. First Solar began the year with a total order backlog of around 2.6 gigawatts (GW), and this number has only improved marginally since then to roughly 2.7 GW as of the end of Q3 2013. While the company has indicated that it has new booking opportunities to the tune of about 7.7 GW, it will be important to convert these leads into orders.
Panels Business: Cost Improvements And Technology Acquisitions
A precipitous decline in the prices of Chinese panels over the last few years threatened First Solar's position as one of the world's lowest-cost solar panel manufacturers. However, this year, the company has taken some significant strides in reducing its panel manufacturing costs and improving conversion efficiency. As of Q3 2013, First Solar was able to reduce its core panel costs (excluding freight, recycling and warranty charges) to under $0.50 per watt, which is now the lowest in the solar industry.  In comparison, Yingli Green Energy (YGE), China's largest panel manufacturer, had core manufacturing costs of more than $0.53 per watt during Q3 2013.
Through this year, First Solar also took some steps to improve its technology by acquiring General Electric's (GE) thin-film solar panel technology with the related patents. GE holds a world record in lab-based efficiency for Cd-Te solar cells. Under the deal, First Solar will also supply its panels to GE, which could prove to be an attractive avenue for First Solar's panel sales since GE is the world's largest supplier of power equipment and has relationships with major power plant developers and electric utilities across the world. First Solar also made some efforts to diversify its product portfolio through its acquisition of TetraSun, a Silicon Valley based start-up that has developed a high-efficiency polycrystalline solar technology. (Related: First Solar's Acquisition Of TetraSun Highlights A More Diversified Strategy) While the acquisitions look promising, the company has yet to begin commercial scale production using these technologies and this will remain a critical factor to watch going into 2014.
Disclosure: No positions.