- First Solar's order book is growing at a rapid pace, along with efficiency improvements in modules.
- First Solar is gaining traction across the globe, which indicates the success of its business model.
- First Solar has improved its operating model, and expects its bottom line to grow at a faster pace.
- First Solar's balance sheet and fundamentals are solid, making it a good pick in the solar industry.
Solar energy solutions provider First Solar (NASDAQ:FSLR) is on an outstanding run this year. The stock has already gained 12% so far in 2014, and it looks likely that its robust performance will continue going forward. First Solar has been reporting terrific growth, and considering its strong balance sheet and a decent valuation, it still looks like a solid buy. In fact, in the first quarter, First Solar's revenue was up 26% year over year while earnings jumped almost 90%. This trend is expected to continue going forward, as First Solar is making a number of impressive moves.
A strong order book
First Solar booked 404 megawatt of declared capacity in the first quarter, which is higher as compared to shipments of 312 megawatts, resulting in a book-to-bill ratio of greater than 1. Driven by strong demand, its addressable opportunity increased from 10.6 gigawatts to 12.2 gigawatts, giving it enough project volumes necessary to replenish its pipeline backlog.
First Solar's best line of modules reached an average efficiency of 14.2% in the quarter, up from 13.9% in the fourth quarter and 13% in the year-ago period. This increased efficiency has reduced its cost, thereby increasing its potential margin. In addition, more efficient modules should provide new business opportunities to First Solar and also increase its total addressable market. Its solid improvements depict the effectiveness of its technology and the robustness of its business development efforts, along with the ability to complete specified projects within the stipulated time period.
In fact, the total outstanding bookings for First Solar increased from 2.7 gigawatts to 2.8 gigawatts. It has also won a 850 megawatt AC engineering, procurement, and construction (EPC) agreement to design and build projects in California. Further, it signed an EPC agreement for 43 megawatts AC with EDF Renewable Energy to construct projects across California.
Construction on these projects will most probably begin this quarter, with completion estimated by the first quarter of 2015. First Solar also expects to announce its first diesel PB hybrid agreement for 5 megawatts AC with a major international mining company in Australia in the near future.
The hybrid market is seen as an emerging business opportunity, which marks the beginning of the company's expansion plans into this high growth potential sector.
Growing across the globe
The module sales booking for First Solar include locations like Chile, Germany, India, Israel, and Puerto Rico. These worldwide bookings illustrate the increasing demand for its products, and indicate its success in capturing new markets globally. This also signifies that First Solar's modules are gaining traction in an increasingly competitive target market, and are expected to break the sales record in the future based on its technology roadmap.
First Solar sees more than 600 megawatts of new opportunities in the U.S., with the major demand estimated to come from the South East. There's an increased growth in the scale of utilities across the country, driven by extensive adoption of solar technology, and an increase in demand due to the expansion of current investment tax credit structure in 2016.
Moreover, there's an increase in demand outside of the U.S. in Latin America and Africa. As a result, First Solar's mid-to-late-stage deals have also increased by 250 megawatts to 1.25 gigawatts. The opportunity for First Solar outside the North America is currently 6.9 gigawatts, which represents 57% of the total opportunity.
All these facts illustrate the increasing competitiveness of First Solar's products and services globally, and the success of the company in penetrating its target markets.
In the first quarter, First Solar's production increased 19% year over year to 441 megawatts DC as a result of improved capacity utilization, higher module efficiency, and throughput improvements on the same number of production lines.
Additionally, First Solar's operating expenses declined, owing to the reduction in personnel costs and relocation expenses associated with the sale of its Mesa zone facility. The quarter-over-quarter reduction in expenses reflects the effectiveness of the efforts taken to reduce general and administrative expenses.
All these positives will filter down to First Solar's bottom line, as the company raised its operating income target to the range of $290 million-$340 million from the prior $270 million-$320 million. It has also increased its earnings per share guidance by $0.20. On top of these positive forecasts, First Solar also has strong fundamentals.
Its trailing P/E and forward P/E ratios stand at 15.13 and 13.35, respectively, indicating earnings growth. The P/E ratio is also better than the industry's average of 25.71. The current ratio is also strong at 3.04. Its debt is just $200 million as compared to a cash position of $1.38 billion, while cash flow generation is also impressive. Over the last twelve months, First Solar has generated $472 million in operating cash flow and $265 million in levered free cash flow.
In addition, the company's earnings are expected to grow 73% next year. So, First Solar looks like a solid bet as it is reporting robust improvements in the business. Moreover, the opportunity in the solar industry is huge, as capital spending on solar is expected to increase 42% this year according to IHS. All in all, due to its impressive valuation, strong balance sheet, and bright prospects, First Solar can turn out to be a good long-term buy.