Will First Solar Surprise Again?

| About: First Solar, (FSLR)

Summary

First Solar is scheduled to report its fourth-quarter 2015 financial results on Tuesday, February 23, after market close.

According to 17 analysts' average estimate, FSLR is expected to post a profit of $0.77 a share, a 59% decline from its actual earnings for the same quarter a year ago.

In my view, investors should be encouraged by the fact that the company expects its book-to-bill ratio to remain above 1.0 in 2016, implying more than 3GW bookings in 2016.

First Solar has a very strong balance sheet and compelling valuation; the trailing P/E is very low at 11.81, and the EV/EBITDA ratio is also very low at 5.91.

The average target price of the top analysts is at $80.13, up 20.5% from its February 9 close price, which appears reasonable in my opinion.

First Solar (NASDAQ:FSLR) is scheduled to report its fourth-quarter 2015 financial results on Tuesday, February 23, after market close. According to 17 analysts' average estimate, First Solar is expected to post a profit of $0.77 a share, a 59% decline from its actual earnings for the same quarter a year ago. The highest estimate is for a profit of $0.96 a share while the lowest is for a profit of $0.60 a share. Revenue for the fourth quarter is expected to decrease 7.8% year over year to $930 million, according to 16 analysts' average estimate. Since First Solar has shown significant earnings per share surprise in five of its last eight quarters, as shown in the table below, there is a good chance that it will also beat the estimates in the fourth quarter.

Data: Yahoo Finance

Since the beginning of the year, FSLR's stock is down 0.7% while the S&P 500 Index has decreased 9.4%, and the NASDAQ Composite Index has lost 14.8%. What's more, since the beginning of 2012, FSLR's stock has gained 96.9%. In this period, the S&P 500 Index has increased 47.3%, and the NASDAQ Composite Index has risen 63.9%. According to TipRanks, the average target price of the top analysts is at $80.13, up 20.5% from its February 9 close price, which appears reasonable in my opinion.

FSLR Daily Chart

FSLR Weekly Chart

Charts: TradeStation Group, Inc.

On December 09, 2015, First Solar announced its full-year 2016 financial guidance. Forecasted net sales for 2016 are $3.9 billion to $4.1 billion, with solar power systems net sales expected to comprise 90% to 95% of the total and third-party module sales the remainder. Earnings per share is forecasted to be $4.00 to $4.50 per share, including a gain from the expected sale of an equity method investment and the company's share of 8point3's (NASDAQ:CAFD) earnings.

Source: First Solar Guidance Call

However, the announcement was before the House and Senate agreed on December 18 to grant extensions to the 30% investment tax credit (ITC) for solar energy. Since the guidance was based on 10% ITC, we can expect even much better performance due to the increased tax credit.

In a conference call along the 2016 financial guidance, CEO Jim Hughes said that FSLR's first major focus area for the upcoming year is to continue its operational execution in both the module and EPC businesses. The company is focused on maximizing module production output to meet strong demand for its rapidly improving module technology. In addition, it is focused on completing more than a dozen large utility scale projects before the end of 2016, which total more than 2GW.

In my view, investors should be encouraged by the fact that the company expects its book-to-bill ratio to remain above 1.0 in 2016, implying more than 3GW of bookings in 2016. The company was already 75% booked at the end of 2015, which means most of the incremental bookings would be towards the support of 2017 earnings outlook. First Solar expects over the coming quarters a significant portion of the projects booked during 2016 will be for international projects. In addition, according to the company, it remains focused on maintaining its strong market share position in the U.S. and continuing its recent momentum of capturing opportunities in 2017 and beyond.

FSLR's investors should also be encouraged by the better-than-expected 8point3's latest results. 8point3 is a growth-oriented limited partnership formed by First Solar and SunPower (NASDAQ:SPWR) to own, operate and acquire solar energy generation projects. The partnership reported its fourth-quarter financial results on January 27, which beat EPS expectations by a big margin of $1.36.

In the report, Mark Widmar, 8point3 Energy Partners CFO, said:

We are pleased with our year end results which enabled us to increase our shareholder distribution by 3.5 percent and maintain our targeted long term, sustainable growth rate. With our conservative capital structure, predictable cash flows from high quality solar assets and significant liquidity position, we have the resources to drive long term growth for our investors.

Also in the report, Chuck Boynton, 8point3 Energy Partners CEO, said:

We are pleased to exceed our CAFD forecast for the quarter as our results reflect the solid performance of our high quality solar projects. During the quarter, more than 130 MW of projects reached commercial operation and now with all of our 432 MW initial portfolio producing energy, we expect these assets to generate approximately $70 million in annual CAFD with an approximately 22-year average remaining contract term. Additionally, we recently acquired the 20 MW Kern County School District project which we expect to generate approximately $2.7 million in annual after-tax CAFD when all three phases are operational later this year and which has a 20 year remaining contract term. This is our first acquisition and the partnership has been offered additional projects that are currently under review. We believe that with our stable, diversified portfolio of solar assets, our dual sponsor structure and associated pipelines and the current favorable policy environment, we are well positioned to sustain targeted growth rates.

Valuation

First Solar has a very strong balance sheet; at the end of the third quarter, it had $1.81 billion in cash and marketable securities and only $285 million in total debt; its total-debt-to-equity ratio is only 0.05. The current ratio is very high at 3.60, and the price-to-cash ratio is very low at 3.71. Moreover, the trailing P/E is very low at 11.81, forward P/E is low at 16.08, and the Enterprise Value/EBITDA ratio is very low at 5.91.

Ranking

According to Portfolio123's "Momentum Value" ranking system, FSLR's stock is ranked first among all 67 S&P 500 tech stocks, as shown in the table below:

The "Momentum Value" ranking system is quite complex, and it is taking into account many factors like yield, price to book value, trailing P/E, price to sales, return on equity, sales growth, and relative strength, as shown in the Portfolio123's chart below:

Back-testing over 16 years has proved that this ranking system is very useful; the reader can find the back-testing results of this ranking system in this article.

Summary

First Solar is scheduled to report its fourth-quarter 2015 financial results on Tuesday, February 23, after market close. According to 17 analysts' average estimate, the company is expected to post a profit of $0.77 a share, a 59% decline from its actual earnings for the same quarter a year ago. Since First Solar has shown significant earnings per share surprise in five of its last eight quarters, there is a good chance that it will also beat the estimates in the fourth quarter. In my view, investors should be encouraged by the fact that the company expects its book-to-bill ratio to remain above 1.0 in 2016, implying more than 3GW of bookings in 2016.

The company was already 75% booked at the end of 2015, which means most of the incremental bookings would be towards the support of 2017 earnings outlook. First Solar has a very strong balance sheet; at the end of the third quarter, it had $1.81 billion in cash and marketable securities and only $285 million in total debt; its total-debt-to-equity ratio is only 0.05. Moreover, the trailing P/E is very low at 11.81, and the EV/EBITDA ratio is very low at 5.91. The average target price of the top analysts is at $80.13, up 20.5% from its February 9 close price, which appears reasonable in my opinion.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.