2015 was an interesting year for the solar industry, with major solar developments, cost cuts and technology improvements. The year ended extremely well for the solar industry with the U.S. Congress extending the investment tax credit for the industry. While it was a good year for some companies, it was also harsh on others. First Solar (NASDAQ:FSLR) has been among the top companies, returning more than 50% in the last year. Not only is the company a top supplier of modules in the U.S. and Asia, but it also owns some of the largest PV plants in the world. The stock prices received a boost after the ITC was extended in December 2015. On the other hand, SunEdison (SUNE) lost more than 85% last year, making it the worst performer.
Source: Google Finance
Above is the one year performance of both the stocks. As can be seen, the stock performance became divergent in the later half of the year.
Why First Solar excelled in 2015
First Solar's last year performance was marked by excellence both in terms of financial bookings and showing technological improvements. The company achieved a 38% gross margin in the most recent quarter and also revised its full year EPS guidance upwards. The company has a strong presence in the U.S., with an increasing presence in emerging markets, especially India (which has pledged to install 100 GW of solar capacity by 2022). The efficiency levels of its thin film panels are now more or less competitive with the multicrystalline Chinese solar panels, with fleet average efficiency improved to 15.8% and the lead line efficiency averaged at 16.4%. EPS for the third quarter stood at $3.38, when compared to $0.93 per share in the prior quarter. First Solar also achieved significant reduction in average module cost per watt. The company gave good performance on all fronts. The U.S. Federal tax extension at the end of the year helped the stock price touching new 52 week highs.
What went wrong with SunEdison
SunEdison on the other hand had quite a harsh year. The stock was punished on account of the company's aggressive acquisition strategy. Though the company took corrective actions and tried to rectify its mistakes, it was probably too late. The debt burden was increasing due to the company's acquisition spree. Though investors were quite happy with the initial acquisitions and also listing of its yieldcos, the rapid increase in debt led to the company's fall. The oil price decline had led to investors becoming wary about energy sector debt. SunEdison which had taken billions of dollars in debt to finance its renewable energy acquisitions was hurt the most amongst solar stocks. The viability of Vivint Solar's (NYSE:VSLR) acquisition was also questioned. Management's decision to let Terraform Power (NASDAQ:TERP) acquire VSLR also faced heat from its major shareholders. SunEdison does not look in a very good shape right now. Though the company was considered to be a renewable energy leader some six months back, its management over-reached and was caught on the wrong foot by the oil price decline.
Valuation & Stock Performance
SunEdison currently has a market capitalization of ~$884 million and is trading at ~$2.8, while First Solar has a market capitalization value of $6.7 billion and is trading near $66. FSLR has a P/E of 11.8x which still looks quite decent, when compared to Jinko Solar's (NYSE:JKS) ~9x given the innovative and technological edge. SunEdison lost more than 85%, while First Solar was up 50% in the last year. While SunEdison's stock was battered following its aggressive acquisition strategy, First Solar was rewarded for its continuous performance.
While things are looking good for First Solar, SunEdison still has to face some heat from investors. SUNE's management has made progress on restructuring and the company still possess a large renewable energy asset base. Though in the short term the company is facing huge debt constraints but if we look at the bigger picture, these acquisitions are likely to lead to long term financial gains. At the current stock price, the risk reward equation looks favorable for SunEdison. The solar industry is poised for double digit growth. The Paris summit and the ITC extension have changed the dynamics for this sector. Nobody can now doubt that demand for solar energy will increase in the future and companies with a strong asset base, experience and technical know-how will benefit. First Solar will benefit due its good geographical diversification, technological edge and competitive cost structure. The company is also expanding capacity and will leverage from its leading position in India.
Disclosure: I/we 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.