First Solar (FSLR) appears to be getting its act together. After a tumultuous decline that has extended itself for more than a year, the utility-scale solar company enjoyed a well-overdue show of force this past Monday as share prices rose 21.25% to $14.95. The motivating force behind the move appears to be a short crescendo of positive news over the last two days culminating in the important addition of two Australian projects to the company's backlog.
(click to enlarge)
A quick look at the decisive trading action over the last few days shows the news came as a clear and positive surprise. Of interest to note for Wednesday's open is the decline of the relative strength index (RSI) over the course of Tuesday without a correlative decline in share price. As the RSI nears oversold territory once again, this may suggest an ongoing rally that will last beyond Tuesday's rise. With 21.61 million shares (5/31/12) short out of a public float that the Wall Street Journal pins at 59.86 million, there appears to be due justification for such a pop.
News.
- On Monday, the thin-film solar leader announced that it would be collaborating with Intermolecular, Inc. (IMI) in order to advance its photovoltaic cell efficiency.
- Also on Monday, First Solar announced that it would design, construct, and maintain two utility-scale solar photovoltaic power projects in Australia totaling 159 megawatts.
- On Tuesday, First Solar also unexpectedly announced that its German plants would increase their production up until the planned closure of the facilities.
Significance.
Often critiqued over the last few months for neglecting its efficiency improvements while crystalline silicon panel manufacturers closed the cost gap, First Solar has redirected its ship into making efficiency once again a target priority. The news of ongoing collaboration with Intermolecular serves as a vindicating piece of news that progress is being pursued not just in-house, but through external means as well.
The news of First Solar's Australian project pipeline additions serves as a critical jumpstart for the company on several fronts. First, it offers credibility on the company's ability to compete in this new utility-scale market it's been forced to retreat into. With polysilicon system manufacturers biting at the company's cost advantage, fears had been rampant that First Solar would be unable to win projects. Second, as noted by CEO Jim Hughes, this win demonstrates the high confidence the industry still has in the company's ability to perform in hot and harsh weather conditions. This idea was recently put into question in light of some poorly performing systems in such conditions. This international win helped to diversify the company's project locations, especially in a country with growing demand for solar power.
Last of all, the news in Germany served as the icing on the cake. Despite its planned closure, the ramped up production at its German facility stands indicative of higher demand in the region. This serves as an uplifting factor that suggests that overall demand cuts in light of the deteriorating economic and political situation in Europe may not be nearly as bad as expected.
Yet for all the recent elation found thus far in a single day, investors of First Solar should continue to exercise caution. The company is not out of the woods just yet as the market conditions for solar manufacturers have yet to truly about face. However, unlike its many peers such as Trina Solar (TSL), Yingli (YGE), and SunPower (SPWR), First Solar continues to generously profit off of its project backlog already in place.
Current analyst estimates for this year expect First Solar to earn $4.08/share, giving the company a price-to-earnings ratio of 3.66 as of June 12. With a price-to-book ratio a meager 0.33, the company continues to appear severely discounted even after the recent gain.
Disclosure: I am long FSLR.
