First Solar - Investors Take Profits After Shares Almost Double In A Month

| About: First Solar, (FSLR)

Shares of First Solar (NASDAQ:FSLR) tumbled in Tuesday's trading session, trading with losses of more than 10% after the solar module manufacturer announced its first quarter results on Monday after the market close.

Despite the sell-off investors have already seen returns of 40% year to date as shares rose sharply in April after the company gave an upbeat guidance for the full year and the years to come.

First Quarter Results

First Solar generated first quarter revenues of $755 million, up 51.9% on the year before. Despite the rapid revenue growth year-on-year, revenues are down 29.8% compared to the fourth quarter of 2012. Revenues came in ahead of consensus estimates of $726 million.

Revenues fell as a result of lower revenue recognition of the Topaz project, while third-party module sales and systems projects sales increased on the year as average selling prices recovered.

The solar company reported net earnings of $59.1 million for the first quarter, with earnings per diluted share coming in at $0.66 per share. This compares to a $449.4 million loss in the first quarter last year which was driven by $444 million in restructuring and warranty charges. Earnings fell sharply compared to fourth quarter earnings of $1.74 per share.

Adjusted earnings, which exclude $0.03 in restructuring charges, came in at $0.69 per share and missed consensus estimates of $0.75 per share.

CEO Jim Hughes commented on the developments in the first quarter, "We demonstrated progress on several fronts during the first quarter, including continue strengthening of our balance sheet and additions to our pipeline. We remain on track for the year and reaffirm our full-year 2013 financial guidance and are focused on achieving our goal of new bookings to shipments ratio of one-to-one."

Looking Through The Income Statement

Gross profits for the first quarter came in at 22.4%, up 700 basis points on the year before, but down 490 basis points compared to the fourth quarter. The company furthermore cut aggressively back on its expenses. The research and development budget was down 17% on the year to merely $29.9 million, while selling, general & administrative expenses fell by 19% to $74.5 million.

Besides tight operating expense control, the major improvement in earnings came from a lack of significant restructuring charges. Restructuring charges came in at just $2.3 million, compared to $401.1 million last year.


First Solar ended its first quarter with $1.01 billion in cash and marketable securities. The company operates with $562.2 million in short and long term debt, for a net cash position of roughly $550 million.

For the full year of 2012, First Solar generated revenues of $3.37 billion on which the company reported a loss of $96.3 million.

Factoring in a 10% decline in Tuesday's trading session, the market values First Solar at just $3.75 billion, valuing operating assets of the firm around $3.2 billion. This values operating assets of the firm at around 1.0 times 2012's annual revenues.

First Solar does not pay a dividend at the moment.

Some Historical Perspective

Long term holders in First Solar have seen an incredible amount of volatility. Shares rose from merely $25 in 2007 to peaks above $300 per share a year later. Shares fell all the way back to $12 in the summer of 2012, before tripling to highs of $48 earlier this month.

Between 2009 and 2012, First Solar managed to grow its annual revenues by a cumulative 63% to $3.37 billion. Net profits fell sharply from $640 million in 2009 as the company was forced to report a full year loss of $94 million for 2012.

Investment Thesis

The surprisingly strong outlook for the year of 2013 through 2015, presented at First Solar's Investors day, provided strong support for shares which rose some 45% in response to the announcements. Shares managed to gain another 20% in the weeks following the announcement.

The 2015 guidance is light years ahead in time for the rapidly evolving solar module market, yet First Solar is comfortable guiding for annual revenues of $4.2 to $4.8 billion for the year, on which the company expects to earn between $4 and $6 per share.

Shares are still selling off on the back of the first quarter earnings report despite the fact that the company sticks to its full year targets for 2013. The softer earnings in the first quarter have made investors a bit wary as production fell 27% to 370 Megawatt. First Solar also achieved lower capacity utilization as it is optimizing production lines to achieve greater efficiencies and lower production costs.

Second half revenues should be higher and profitability should continue to improve as the firm aims to cut $15 million in costs for the second half of the year. The company furthermore continues to aim for a book-to-bill ratio of 1.0 for the year, as the backlog ended at $8.0 billion in the quarter, sufficient to generate two years of revenues. The strong quality of First Solar's modules and strong balance sheet helps the firm to close deals, as the company expands in emerging markets in order to diversify its operations.

At this rate First Solar remains on track to achieve full year revenues of $3.8 to $4.0 billion for the year on which it could earn between $4.00 and $4.50 per share. This values operating assets at merely 0.8 times annual revenues and 8-9 times annual earnings.

In March of this year, when shares were trading in their mid-twenties, I took a look at First Solar's prospects. At the time I concluded that shares offer long term potential given the solid financial positions which is a competitive advantage in the plagued solar industry. The structurally lower cost base accompanied with modest signs of a recovery made shares appealing as they almost doubled to highs of $48 in recent weeks.

Trading around $44 at the moment, I continue to see long term potential. Yet there are no convincing arguments or new facts in the latest report to initiate a long position at these levels.

I remain on the sidelines.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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