First Solar Should Again Crush Estimates Wednesday

First Solar is announcing earnings on Wednesday Feb. 13th before the bell . FSLR is expected to bring in $0.53 eps with $179.48 million in revenues. High estimates call for $0.64 eps and $186.64 million in revenue. Sales growth based on these estimates would be 240%. Growth estimates for the quarter on EPS would come around 341% and 400% for next quarter. Growth estimates for the year come in at 1600%.

If they beat, which I believe they will, growth estimates for the year must be upped as well as the multiple. FSLR has a ridiculously small float at only 60 million shares with shares short dropping by 50% from November to December. The float gives FSLR explosive movement and this one could really move after earnings. It should have the same explosiveness as ISRG.

FSLR has destroyed earnings estimates the last 4 quarters. In last year’s December Quarter they beat by $0.19, about a 271% surprise, the quarter after that they beat by $0.07, the June quarter they beat by $0.04 or 133% and in the last quarter they beat by $0.30 over consensus estimates for 157%.

Earnings estimates have been raised $0.10 in the past 90 days from $0.43 to $0.53. At this rate of growth and previous beatings on consensus, I expect them to wallop this week’s earnings estimates and could bring in over $0.75+ EPS which would amount to a conservative 50% beat compared to previous quarters. Here are some analyst thoughts and recent developments:

According to Bank of America on Feb. 4, they believe it is almost certain that the next President will be more supportive of the environment than Bush. Their top picks include FSLR, JASO and STP, the November election could be a huge positive for them.

Cramer has been bullish about FSLR lately during the lightening round.

On Jan. 28th, Calyon lowered its price targets on FSLR due to multiple pressure from a weak market environment from $345 to $245 yet they remain bullish on the shares.

On Jan. 24th, SG Cowen believed that PV solars remain compelling and reiterated Outperform ratings for FSLR saying they expect December earnings and March outlooks to be solid but hedge their comments by saying that they do expect challenging periods ahead, probably due to overall market weakness and multiple compressions.

On Jan 23rd, FSLR and SPWR were added to SOLAR portfolio List by DBAB, on the same day Wedbush said they believe in FSLR is a compelling long term opportunity but cites valuation for their Hold rating and price target of $195

On Jan 22nd, Lehman Brothers said that the solar sector was oversold and that they would be aggressive on FSLR.

On the same day Louis Navellier’s Blue Chip Growth chose FSLR as one of their top picks for February.

On Jan. 16th, Pacific Growth upgraded shares of FSLR on valuation as they believed that FSLR was oversold, saying that the company will benefit from its scale, cost cutting initiatives, a tight polysilicon market, and recent acquisition of DT Solar.

On Jan 15th, Oppenheimer said that new polysilicon entrants will likely fall short on their objectives, lending support to spot prices, a positive for FSLR and WFR.

On Jan 11th, Calyon said thatthe global recession would only marginally impact solar demand and to buy on a oil pullback if correlated.

Goldman Sachs came out the same day on the 11th and raised FSLR’s target to $300 from $275 with a Buy rating.

I fully expect FSLR to be volatile going into the event and especially after the earnings announcement. I expect a big beat and a raise. I expect a big gap up. If guidance is weak I expect a big gap down but see that as a very small chance of happening.

Last earnings FSLR’s CEO said, “We successfully completed the ramp of our German production facility well ahead of schedule, which afforded us with highly leveraged growth during the quarter and provided our customers with additional production volumes in a continued robust demand environment,” said Mike Ahearn, chief executive officer and chairman of First Solar. This new production facility will still add further to the top and bottom line since being completed earlier. Also a reminder is the European Union is aiming to have 21% of its energy produced by renewable resources by 2010. On November 6th, they annunced a new partnership which would allow approximately $1 billion in additional sales between 2008 and 2012 and building another production plant in Malaysia increasing the centers to four and production lines to 16 total.

Last earnings announcement came with upward guidance on revenues and I do expect another upward guidance as their new production facilities come on board earlier than expected as management continues to execute as they have previously with early on the schedule production facilities. On last earnings, management set its projected 2008 sales range between $760 million to $800 million, above Wall Street’s anticipated $701 million with panel production between 370-390 mega watts. Right now as stated above consensus revenues for 2008 is at $812 million with $905 million breing a high estimate. With a company growing this fast with the ramping production capabilities not to mention a favorable currency exchange, one could easily surmise that company guidance could be increased by at least another $50 million for 2008, not far fetched.

According to Deutsche Bank analyst Steve O’Rourke, the company’s results came in well ahead of expectations as its German production facility ramped ahead of schedule, and incremental improvements in efficiency, production throughput, and currency exchange rates drove panel cost per watt to a new low of $1.19.

Going into earnings I will be overweight on OTM calls with a hedged strangle with OTM puts. I will look to capture a pre-earnings run if the market stabilizes and supports it. FSLR has shown historical volatility to earnings. Last earnings FSLR gapped for a 50 point move. Now with the stock trading where it was at before the last gap up (filling the previous gap) on earnings and with a severe sell off from its highs of $283, it looks compelling. The at-the-money call options are trading at $12 going into this week.

Market sentiment is important and if we get a market meltdown, all bets are off and I would wait right before the close on Tuesday before initiating a strangle for the Wednesday morning announcement.

Happy Hunting!!!

Disclosure: author is long FSLR

Comments

[Buffettz:]

The last quarter was a blow out mainly due to the faster than expected ramp-up of the German plant, but that can't be repeated this quarter as it is at 100% capacity. I can't see how Q4 can deliver more than about $0.62, they just don't have any more production capacity.
What could lift the stock are any plans for further factories which must just be a mater of time.

2008 Feb 11 02:12 PM

[Mark Anthony:]

The surprise news today is that Goldman Saches has virtually unloaded their entire stake in FSLR, 96% of it. I am guessing bad news will come right after the earnings release. Doesn't even matter whether they met or miss the numbers, the guidence for the future will not look good.

2008 Feb 11 11:55 PM

[User 150405:]

Mark, Optiondragon is always bullish on earning. and he get's around 50% rite due to pure guess. He basiclly just read what the analysts say and do no research of his own. He said VMW, EDU will go up big after ER but instead they dropped more than 30%... he has no credibility

2008 Feb 12 12:47 PM

[Harold Kramer:]

Good call in your last paragraph. The drop is breathtaking. 3:40 PM ET!

2008 Feb 12 03:39 PM

[Option Dragon:]

User150405, i strangled those names actually so I am long volatility with a slight bias. up big down big no prob for me.

2008 Feb 12 05:02 PM

[Option Dragon:]

I am always right on volatility and as a strangler profitable.

2008 Feb 12 05:17 PM

[Erin Young:]

What you did not consider was the last gap up was from the huge short posistion. That short position has now covered and there are very little shorts left except for the daytrader idiots on the yahoo message board. Look for FSLR report decent earnings but this time no gap up.

2008 Feb 12 06:02 PM

[Option Dragon:]

all wrong I did my homework guys and my brain said buy , I listen to my brain, been doing this for half my life. Besides anyone who comes on here with a user moniker is hiding something anyways. Long vol with a hedge.

2008 Feb 13 12:29 PM