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The solar industry has been looking a bit cloudy in the past year, so I dug into First Solar's (NASDAQ:FSLR) recent earnings call transcript to see how conditions in the industry are progressing. The company recently reported earnings for Q3 2012. Although the company beat earnings estimates by 22% (EPS actual of $1.27 vs. estimates of $1.04), it missed on revenue by $127.4 million (-17% year-over-year). The company also lowered its operating cash flow forecast for 2012 to $650M-$850M from previous forecasts of $850M-$950M. The company has experienced an increasing amount of production cuts, capacity reductions, and bankruptcies in the past few quarters. It also said that a number of construction sites were impacted by Hurricane Sandy.

CEO, James A. Hughes, said that the solar industry remains challenged. However, he said that he is seeing signs of stabilization. First Solar is expanding its global presence with its first major project in the Middle East. The company was selected by the Dubai Electricity and Water Authority to construct a 13 megawatt PV power plant. This $3.3 billion project is expected to represent one gigawatt of clean energy capacity using PV and solar thermal technology. First Solar will be using its Cattail Technology for this project. The company recently opened an office in Dubai, and is bidding on other projects in the Middle East.

The company has reported that its total new bookings in India year-to-date have amounted to 114 megawatts DC. It's also partnering with PJB Services on a project in Indonesia on the delivery of 100 megawatts of utility scale solar power plants to help handle growing energy demand. First Solar has also established a Thailand operating subsidiary where the company has 12 megawatts of solar PV projects.

In the U.S., First Solar is working with PG&E Corporation (NYSE:PCG) on the Lost Hills and Cuyama projects in California for a combined 72 megawatts AC. This is subject to approval with a decision expected in the 1st half of 2013.

There is a project totaling 20 megawatts AC of generating capacity for PNM Resources (NYSE:PNM) in New Mexico. That project could be operational by the end of 2013, depending on an approval expected this quarter by the New Mexico Public Regulation Commission.

There is a new project to provide 267 megawatts DC in California. 40 megawatts have been shipped, with the remaining modules expected to be shipped in 2013.

First Solar's project pipeline is currently 3 gigawatts AC, which represents the total of all contracted projects in the pipeline, excluding those that were delivered in Q3.

The company has invested a lot in its grid stability technology. This limits how fast a power plant's output increases or decreases to minimize grid disruption. This allows power plants to operate through faults and other grid disturbances. First Solar's grid stability technology is difficult and expensive to duplicate, giving the company a competitive advantage.

In Q3, First Solar produced 490 megawatts which increased 33% over Q2. This equates to running factories at 83% of capacity as compared to running at 63% of capacity in Q2. The company attributed the increase to stronger demand. First Solar plans to operate its plants at 90% to 95% of capacity in Q4.

Due to several construction sites being negatively impacted by Hurricane Sandy, the company is lowering guidance for its 2012 revenue. It expects net sales of $3.5 billion to $3.8 billion as compared to previous estimates of $3.6 billion to $3.9 billion. The company said that this is more an issue of timing as any lost revenue in Q4 would be shifted into Q1 2013.

Earnings per share for the year are expected to finish between $4.40-$4.70, which is the upper range of its previous guidance of $4.20-$4.70. This narrowing of the range is a result of having a lower full-year manufacturing cost per megawatt of $0.68 to $0.70. FSLR was able to achieve this cost improvement with better plant utilization.

Although there might be some headwinds in the near term for First Solar, I think that investors need to have a long-term view. Currently, the stock is undervalued with a forward PE ratio of 5.65 and a PEG of 0.20. The stock is trading at $22.54, which is under its book value per share of $39.74.

The company is expected to grow earnings annually at 17.5% for the next five years. As First Solar continues to expand internationally with demand for its solar power plants, the stock should recover. Provided that the company can increase revenue and earnings in the future, prospects will look brighter for the stock.

Source: What First Solar Is Saying About Its Business And The Industry