First Solar (NASDAQ:FSLR) announced fairly mixed earnings after the market close (see earnings report here and earnings call transcript here). With the company's stock price having rallied almost 30% this year, the indications are that a large amount of the good news is now priced in. I have been recommending solar stocks such as First Solar and SunPower heavily this year. However, over the course of the past few days I publsihed a couple of articles suggesting that it would be wise to temporarily take profits on solar plays and rebalance towards other renewable energy trades. Thursday's earnings from solar bellwether FSLR perhaps suggest that we may now have seen the best part of solar's stellar rally this year.
In terms of the earnings numbers themselves, First Solar missed on revenues but beat on earnings per share. Revenues in Q4 came in at $610m versus $648m expected. Q4 EPS came in at $1.80 compared to expectations of $1.77. Guidance was also mixed. The company eased back on its guidance for 2011 sales - to a range of $3.7bn to $3.8bn from $3.8bn to $3.9bn. However, management still felt able to raise guidance on 2011 earnings per share to a range of $9.25 to $9.75 from $8.75 to $9.5.
These numbers are certainly not bad. However, after the strong rally in the stock this year and strong earnings and guidance elsewhere in the industry, the market probably needed to see another set of blow-out numbers to secure a further rally in the stock price. Given the profits embedded in the stock year-to-date, the numbers probably just don't look good enough to overcome the market's desire to book some profits.
In terms of the big picture outlook for solar, two charts from the analyst's presentation are worth highlighting. The first chart below, shows the results of First Solar's survey of 17 analysts in the industry. Two points seem clear. Firstly, the market clearly sees steady growth global demand ahead despite a slowdown in Europe. And secondly, the charts point to a significant and dramatic growth in the importance of the US market. This long-term story remains intact.
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The second chart underlines a point I have been making all year - the significance of the dramatic arrival of the US utility-scale solar market. The chart itself shows First Solar's current pipeline of utility-scale projects in the US. As you can see, it has now grown to an impressive 2.4GW (AC).
These charts speak strikingly to the most significant part of solar's long-term positive story.
However, in the near-term there must be a concern that the rally in solar has by far outpaced the gains seen by other renewables, suggesting that taking some profits would not be an unreasonable idea. The chart below makes the point fairly eloquently. It shows the stellar performance of First Solar against the two main bellwethers in the wind market - Vestas (OTCPK:VWDRY) and Gamesa (OTCPK:GCTAF).
Particularly given the prospect of continued instability in the Middle East and both high and volatile oil prices, I still like the investment story for renewables and clean technology generally. However, in the past few days I have been booking good profits and rebalancing away from solar. Solar plays have already provided outsized returns this year. Meanwhile, other areas of the clean technology universe are yet to really get going. The next best plays particularly lie with oil's direct competitors - electric cars, natural gas trucking and biofuels.
Additional disclosure: I have taken profits on a significant part of my position in First Solar (FSLR).