First Solar Outlook: Sunny And 75

Apr. 8.14 | About: First Solar, (FSLR)

Summary

Overview of past and current solar PV module supply and demand.

First Solar is rising from the ashes and is well-positioned in the market through acquisition, innovation and new markets.

Outlook for First Solar.

Solar PV stocks have been shining brightly over the past year, and 2014 appears to be another solid year for the industry. Leading the charge is Tempe, Arizona-based First Solar (NASDAQ:FSLR), the largest American solar-panel manufacturer. First Solar's share price since its IPO in 2006 tells the story of the solar PV business.

The industry experienced extreme growth that was primarily driven by European incentives which led to a component and material shortage in 2007-2008. This drove solar stocks to all-time highs; First Solar's stock traded for above $300 in 2008. This boom was followed by 4 years of bust, which led to a significant industry shakeout, sending First Solar's share price to around $11. The main driver for the collapse was significant state-level investments in China that led to a huge increase of over 500 Chinese companies producing modules, silicon, wafers, and cells. The Chinese investments caused an overcapacity in production, which negatively affected the majority of manufacturers in the space, and the non-Chinese manufacturers were quickly pushed out of the industry. A number of weaker Chinese companies also fell to price pressures leading to large number of bankruptcies. Wishing to leave the business, start-up manufacturers flooded the market with an abundant amount of exceptionally low-priced inventory, creating a significant glut in the global market.

After four years of decline, global module prices have since stabilized. Some companies managed to weather the storm, others went under, and some took the opportunity to better position themselves. In the case of First Solar, they repositioned themselves, and their shareholders were rewarded handsomely, especially those who purchased stock in 2012. Today, First Solar trades in the $60-70 range.

Since 2007, the global energy market has seen dramatic, fundamental changes; the decrease in global PV module costs has allowed governments to remove incentives, such as Feed-in tariffs, as solar has become more economic compared to other traditional forms of electricity generation. Today, solar PV can stand on its own in numerous regions across the globe in a number of different applications.

In 2013, First Solar made a strategic move to acquire Tetrasun, which has achieved a third-party confirmed efficiency of over 21% with its n-type silicon cells that it aims to replicate at its 100MW-capacity production plant in the last quarter of 2014. Aside from the Tetrasun announcement, First Solar is still moving to increase capacity for its Cadmium Telluride (CdTe) thin film technology. Its CdTe nameplate manufacturing capacity, which currently stands at 1.8GW, will gradually increase in 2015 by 200MW, followed by 400MW in 2016, and 700MW in 2017. Based on new capacity forecasts, in 2018, the company could have a manufacturing capacity of 3.5GW for its CdTe product.

First Solar's business model has been heavily focused on developing turnkey systems in traditional markets, such as Europe and the USA, but they have also been investing in developing projects in emerging solar markets where solar-generated electricity is gaining traction against traditional energy sources. They recently secured a 20-year Power Purchase Agreement [PPA] for 52MW in Jordan, and they broke ground on a project in Australia that will consume 102MW of advanced thin-film modules. Other notable projects include: 1GW DEWA 13, which is located in the United Arab Emirates, and a 550MW solar farm in San Luis Obispo County, California.

On March 19, 2014, First Solar provided Full Year 2014 financial guidance as well as a summary of financial targets through 2016. For 2014, the company published a net sales target of $3.7-4.0 billion; 2015 and 2016 published net sales targets are reported as $3.8-$4.3 billion and $3.8-$4.5 billion, respectively.

From an innovation standpoint, the company is positioning itself within the hybrid energy generation and off-grid/energy access market, along with the diesel offset market. The collapse in solar PV system costs has allowed solar to enter new and exciting next-generation applications. According to First Solar, solar is now cheaper than diesel, making solar PV a good match for the fossil fuel engine generation by allowing for reduced fuel consumption and leading to long-term cost reduction. Primary applications include mining operations, telecommunication towers, village power, and remote energy, amongst other areas that presently operate off diesel fuel.

However, First Solar still needs to demonstrate its ability to penetrate the commercial market. Thin film modules, historically, have not done well due to space constraint issues compared to highly efficient silicon modules. The recent acquisition of Tetrasun is likely their ticket into this market. The global solar PV market is expected to reach 49GW in 2014, with industry forecasts calling for the industry to reach 100GW by 2018, which demonstrates the rapid growth in adoption that solar is going through.

First Solar is well-positioned to continue executing on its vertical integration strategy and ongoing growth as it has outlined for the coming years. In response to the company and industry growth perspective, Citigroup analyst Shahriar Pourreza has reiterated a "buy" rating for the stock, upgrading its price target to $87. First Solar presents an opportunity for investors looking to invest in an innovative, well-established, vertically-integrated solar player.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.