DFN: First Solar uses a cadmium telluride based PV versus other manufacturers rely on a Silicon based PV. Silicon is more efficient in terms of energy production, but the First Solar PV thin film can operate in lower light conditions, thus offering a more stable production.
Does the Sun Still Shine on First Solar (FSLR)?
By: InvestorGuide Staff, dated February 28th, 2011
Ongoing tensions in the Middle East have thrust crude oil prices into center stage, increasing volatility and applying pressure to stock market indexes worldwide. A rising tide, however, raises all boats across the energy sector, which includes the speculative markets of solar and wind energy. First Solar (FSLR: Charts, News, Offers), the world’s largest manufacturer of thin-film solar power modules, has seen its shares fall and rise between a tumultuous 52-week range of $98.71 – $175.45. The company reported mixed earnings last week, which divided analysts on the prospects of a bright future for solar energy amid global political turmoil. Although crude oil has provided the company with a slight sector wide boost, it is uncertain if the stock’s 30% year-to-date rally can continue.
First Solar produces cadmium telluride thin-film PV panels on glass substrates, which differs from its competitors, which primarily produce crystalline silicon PV cells. Cadmium telluride cells produce far less electricity per cell than traditional crystalline silicon PV cells, but can function in lower light conditions, thus increasing its effective charging period in shorter daylight and adverse weather conditions. This is attractive to companies which wish to utilize a more stable source of solar energy over longer periods of time. The company currently holds a 16% market share in U.S. utility contracts through 2015, as well as 6.3 GW of upcoming contracts between 2010 to 2012 in China and international markets.
Solar growth in China is especially strong, considering that the second largest global economy’s demand for cleaner renewable energy has already spawned several successful Chinese solar companies including Yingli Energy (YGE: Charts, News, Offers) and Suntech Power (STP: Charts, News, Offers). In Europe, on the other hand, growth is expected to slow in the region due to a decrease in government subsidies. The European market, however, is considered a mature one as it was one of the earliest adopters of solar power. The American market, ironically, is fertile ground for solar companies – its solar power capabilities are the least developed of the major world markets. While most companies have been fleeing the United States due to a falling dollar and stagnant markets, solar companies have been in high demand – First Solar claims 16% of the total 2.4 GW of energy in the U.S. utility pipeline. To put this in perspective, the United States had a total of 0.1 GW of solar power in the utility pipeline in 2008. Its sudden exponential growth was no doubt fueled by spiking gas prices in 2007-2008, which saw crude oil soar to an all-time high of $147 per barrel. Like China, the United States has ample desert land to develop solar plants, and is fueled by the same demand for cleaner, renewable energy sources which can save the country significant capital in the long-term.
As for its quarterly earnings, First Solar beat the analyst consensus of $1.77 per share with an EPS of $1.80, but its revenues fell short of the expected $648 million at $610 million. The company slightly cut guidance for 2011, down to a range of $3.7-$3.8 billion in sales from $3.8-$3.9 billion, yet it raised EPS guidance from $8.75-$9.50 to $9.25-$9.75. These mixed earnings are neither bearish nor bullish, yet some analysts have already forecast a pullback in the shares, which have been on fire since last June. Solar power has traditionally been a higher P/E industry with lofty expectations and speculative forecasts. However, one thing is becoming clearer – there is decreasing speculation and increasingly solid contracts which suggest that once the near-term economic headwinds cease, there can be real growth moving forward as large corporations and countries adopt solar power as the next step in utility pipeline development. There is significant concern that solar may be overvalued in comparison to wind power, and some clean energy investors are re-balancing their portfolios toward wind in anticipation of faster growth. However, wind farms are more low-tech than solar, and are marketable in fewer regions than solar power. First Solar still trades with a reasonable forward P/E of 17.1, and pays no dividend.
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