Recently Solyndra has been all over the news. The skinny on what happened: $500M in federal grants was basically squandered, and Solyndra created a product that is completely uncompetitive in the marketplace. After I saw all the attention this story was getting, I began to think to myself “If China is creating, essentially, the same product at some times up to 50% cheaper, why would anyone buy the same product for 50% more?” After I did some digging, I came to the following conclusion.
The victim is the beloved company First Solar (FSLR). Earnings are expected to come out Nov. 3, 2011, and I think it is going to be much of the same. In the previous quarter FSLR reported revenues down about 10% from a year earlier, while selling expenses are up 11.5%. Net Income is down over 60% from a year earlier. Cash to current liabilities is a measly .0078 (not a typo), which should clearly show investors that if anything unexpected happens, FSLR is in a really tough position.
According to the FSLR 10-K:
In other markets, such as the United States, the demand for solar has been primarily driven by state level renewable portfolio standards requiring regulated utilities to supply a portion of their total retail sales of electricity from renewable energy sources such as solar PV generating facilities.
That statement really illustrates the definition of governmental influence by saying, “we sell our product because the government forces regulated utilities to purchase it.” The FSLR 10-K also stated that:
The major European governments continue to seek to balance subsidy costs with their commitment to the EU directive's goal of a 20% share of energy from renewable sources in the EU by 2020.
The biggest problem with this statement is they aren’t taking into account the enormous debt crisis going on in Europe. If these countries are paying high interest rates to get more debt (Spain, Greece, Portugal, and Italy) they are going to be less likely (I would hope) to shell out money and subsidize solar projects. Sales will continue to decrease in Europe and the United States, in our opinion. We are rating FSLR a “Sell” and are recommending our clients to short this company ahead of earnings.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in FSLR over the next 72 hours.
