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Summary

  • The company will be a beneficiary of the increase in competitive solar panel prices.
  • Sales and earnings should be at or above the high end of guidance.
  • Key metrics to watch for the company are the non-financial metrics.

First Solar Inc. (NASDAQ:FSLR) is set to announce its Q1 2014 quarterly results on May 6th. We are believers in the FSLR bull thesis, though the company's quarterly revenues and profitability are difficult to predict due to the lumpiness of projects. Ahead of the earnings, we believe savvy investors can benefit from the FSLR investment strategy mentioned here.

Given its last-quarter earnings miss, FSLR seems have set a relatively low bar for this quarter. The company will also likely be a beneficiary of rising Chinese panel prices and a return to more rational gross margin structure by the Chinese competitors.

With regard to key financial metrics, we will be looking for:

  • Revenues at the high end of or above the guidance ($800-900M): Driven by an increase in the module business due to increased competitiveness.
  • Profitability at the high end of or above the guidance ($0.50-$0.60): Driven by efficiency increases and a favorable pricing environment due to competitor panel price increases.
  • Bookings less than or equal to 2.7 GW. Book-to-bill to remain at 1:1 approximately: We expect that, in spite of the company's promise to do so, it will be increasingly difficult to maintain a 1:1 rate as the company diversifies into smaller, shorter lead time commercial projects and with increase in opportunistic module business.

Outside of the financial metrics, the company must show it is making good progress along the key operating vectors. The company must show that it has the ability to execute on its roadmap to increase its competitiveness to justify the earnings growth. The key metrics we will be looking for are:

  • Solar panel efficiency should be at or above the necessary track to meet with long-term projections. Lead line: 14.4%; Average: 13.6%.
  • Cost per watt should continue to decline. Best plant: $0.51 per watt (excluding underutilization).

Given the current earnings momentum behind the stock, FSLR investors may see a meaningful bump in the company stock price, if it can meet or beat these criteria.

Our sentiment: Buy

Disclosure: I am long FSLR. 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.