There are few companies that have had a worse year than First Solar (FSLR). Reaching a 52-week high of $140 in July, 2011, the once solar power juggernaut has seen its share price tumble to its current 52-week low of around $15.
Although First Solar cannot attribute a single factor to its free fall, there are several main contributors that may be finally turning in First Solar's favor in the coming months. With the optimism for First Solar's resurgence, remaining neutral on First Solar for the short term could maximize investors' long-term profits.
The Rise in Crude Prices Will Increase Solar's Appeal
It is no secret that the fluctuating price of crude will play a large role in First Solar's appeal to investors in months to come.
The price of crude has recently dipped to around $94 per barrel. As a result, First Solar's share price followed suit by shedding 5.4% of its value.
With the relatively mild winter across the United States, a factor that significantly reduced the demand for heating oil, it is no surprise that oil experienced a brief plunge. However, with the summer time driving and cooling season approaching, many experts have projected that crude will once again reach prices of around $110 per barrel, a price increase that should improve First Solar's appeal to consumers looking to free themselves from crude's volatility.
Price Appeal in Developing Countries
With the rise in crude expected to continue throughout 2012 and the continued drop in solar cell prices, the solar power market has begun to appeal to a wider range of consumers outside of the United States.
As the price of solar has now become more affordable than most fossil fuels, the use of solar has increased in its small scale viability to the approximately 1.3 billion people worldwide who do not have access to a national grid for their electricity needs.
Saudi Arabia Large Scale Solar Power Goals
Known as one of the leading producers of oil in the world, Saudi Arabia recently released its intention to invest $109 billion in solar power, a project that will produce 33% of its electricity within 20 years.
With its position as the leading provider of global photovoltaic solar systems, a cost efficient approach to wide scale solar energy production, First Solar is a prime candidate to meet a large amount of Saudi Arabia's increased demand. This partnership should lead to long term profits for First Solar that could reverse its fortunes in the matter of a couple of months.
Rise in United States Duties Could Level Playing Field with Chinese Producers
With significant reductions in labor costs as compared with its U.S.-based competitors, along with lax government regulations, these solar companies have been able to make significant gains in the United States market, a presence that the U.S. is now trying to curb.
The United States recently released its intent to increase the duties paid by these two solar companies, rising SunTech's obligations to 2.9% and Trina Solar's duties to 4.73%.
Acknowledged by President Obama as "not playing fair," the increase in duties to these companies could possibly be the first step in a larger-scale effort to ensure that First Solar and other United States-based companies such as Evergreen Solar (ESLRQ.PK) are able to compete in the coming years, a competition that should spell further profit for First Solar in its United States based projects.
Nevada Leading the Way in Public Land Solar Projects
Another significant boost to First Solar's viability in the future was the announcement of its completion in cooperation with Enbridge (ENB) of the Silver State North Solar Project, the first such project to be completed on public lands.
With the completion of the plant, it was reported the 3,800 construction jobs were created, that the power generated at this plant will be enough to power 9,000 Nevada homes and that 42,000 metric tons of CO2 will be eliminated each year, which is equivalent to taking 8,000 cars off the road.
First Solar, which was responsible for the construction of the facility and for providing the solar cells, earned significant praise from the Secretary of the Interior, Ken Salazar and Enbridge President, Al Monaco, who has invested nearly $3 billion in alternative energy projects to date.
With the wide range of benefits that have been revealed in the completion of the North Solar Project, investors should expect a further projects to be commenced in the near future, an investment that will put First Solar in the forefront for both design and production services.
Pending Lawsuit and Risk of Class Action Lawsuit Should Give Investors Pause
Despite the abundance of positive news for First Solar, the class action lawsuit initiated by investors in March 2012 should give investors a reason to pause.
Alleging that First Solar hid the scope of manufacturing flaws that allegedly cost it $253 million in replacement costs, the pending litigation may expand further by adding additional defendants by the end of the year.
Based on the unknown scope of this lawsuit, it is my opinion that investors remain neutral on First Solar until the breadth of the suit is known.
The overall news for First Solar is good and the future projections are favorable if its pending litigation is resolved amicably. However, until further news is known, First Solar will remain neutral. If a favorable legal outcome is announced however, First Solar will have tremendous potential for long-term dividend growth.