First Solar (FSLR) stock price fell from $132.27 at the end of June to its current price of $63.21 Friday. I don’t think it’s going to stop there either. This is a company that is showing signs of trouble and the roughly 40 Wall Street analysts are just not getting it. They see FSLR growing by 34% for the quarter ending in September 2011 to $2.73 per share on average.
Let’s take a look at why these projections are so unattainable. For Q3 2010 FSLR earned $2.04 per share, Q4 2010 it was $1.80, Q1 2011 it dropped to $1.33, and the most recent quarter they reported earnings per share of just .70 [see transcript]. These 40 analysts are predicting annual EPS to be $9.10! Consider that their earnings are dropping quarter after quarter and that they only earned $2.03 in the first 2 quarters makes the possibility of them making up the $7.07 very unlikely.
Short sellers recognize that the projections of analysts are more rosy than realistic and are putting their money where their mouths are. Almost 30% of the company’s float is being shorted, which is up from last year.
SunPower Corp. (SPWRA) Shares at the end of June were $19.33 and are now selling for $8.09. Analyst consensus has EPS for this quarter being 0.08 and 0.82 for the next quarter. This company beat estimates in 2 of the last 4 quarters, missed Wall Street estimates by 0.02 one quarter, and met expectations in the most recent quarter, which was for a loss of 0.19 per share.
Trina Solar Ltd. (TSL) is down 72% year over year. It trades at a historic multiple of $1.85 and a forward multiple of $3.85. The last 2 quarters the company has missed analyst estimates by a substantial amount. However, I think that analysts are much more realistic for the current quarter, estimating EPS of .36 and .42 for the next quarter.
Trina has grown year over year at a compound rate of 125% but has increased its debt, cost of revenue and COGS in each of the last three years. Green initiatives by the Chinese government will help this company in the coming years.
I see strong headwinds for this cohort as political tides turn more towards deficit reduction and away from green technology, guaranteed loans, and federal incentives. American companies in this sector are also being beaten by Chinese and other Asian manufactures that operate with a much higher margin (16.5% for Trina). While these companies produce commodity products in much the same manner as foreign companies with cheaper labor, American solar manufactures will struggle.
American solar companies that innovate to find new manufacturing processes to help increase margins, find ways to make panels more efficient, or to pioneer new and creative ways to apply thin film, will be the ones to lead our nation forward. These are the companies whose risk/reward profile beats most others, especially in the energy sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.