When it comes to the solar industry, I was one of the most bullish names out there until late 2011. While I was initially defending First Solar (FSLR) around $90, I bailed on the name after they took down yearly guidance just a month later. Since then, the stock has been in total free fall mode, falling all the way to Friday's close at $15, and that is only after rebounding off the 52-week low of $11.43. The main culprit for the last leg down was the ugly Q1 report.
The company missed widely on revenues, and posted a huge loss on a restructuring charge. Revenues were down 12% over the prior year period. However, it appears that the huge revenue decline (and expectations miss) was due to some revenues not working into the Q1 numbers. It appears that some of those lost sales will be made up in Q2, with current analyst expectations calling for a 54.5% revenue increase in the quarter, from $532.77 million in 2011 to $823.06 million in 2012. It makes for a very wild ride, but the revenues missed in Q1 could be easily made up in Q2.
Earnings per share are expected to increase as well, from $0.70 in the prior year period to $0.99 in the current period. However, the true number could easily miss that, as the company continues to take some warranty and restructuring charges. But the adjusted numbers will be compared to that $0.99 estimate, and First Solar needs to beat that. The company has missed earnings estimates by at least 15% in each of the past four quarters.
But for the solar industry and First Solar, revenues need to increase before they can worry about profits. You have to have some demand, and right now, there is just too much supply. But there has been some good news for First Solar recently. First, the company agreed to a deal with LA County over the installation of solar modules at the delayed Antelope Valley project. The deal will be for a 230 megawatt power plant to be completed in 2013, with the ability to generate power for about 75,000 homes. Also, General Electric (GE) has recently announced plans to stop building a thin-film solar plant in Colorado. GE will halt production on the plant for 18 months as they continue to improve their technology, which currently trails that of First Solar. The move by General Electric can be seen as a short-term positive for First Solar, which needs any help it can get right now.
For the year, analysts are expecting First Solar to increase revenues by 26% to $3.48 billion. Obviously, most of those gains are expected in Q2. Yearly earnings though are expected to fall from $6.01 to $4.06. First Solar did raise its earnings range from $3.75 to $4.25 at the start of 2012 to $4.00 to $4.50 at the Q1 earnings release. For now, First Solar seems the only one able to be profitable (excluding charges, since it basically lost $10 in the past two quarters with them). The other candidate for profitability was SunPower (SPWR). At the beginning of 2012, SunPower was expected to post a profit of about $0.35. However, as analysts have cut estimates, that name is expected to post a 13 cent loss currently. For now, SunPower and First Solar are probably the only two that could produce profits during the 2012 calendar year.
If First Solar can manage to get those revenues up, this stock does seem like a steal trading at under 4 times currently expected 2012 earnings (adjusted for charges). That seems unfathomable for a name that was trading at 15, 20, even 25 times expected earnings just a few years ago. First Solar is starting to look like a long term buy again, but investors should realize that their could be some more downside before the name truly bottoms.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.