Things looked so nice for FirstSolar (Nasdaq: FSLR). It was clearing nice deals to build solar parks in the desert, and its stock was pushing past $35. Alas, the price has gone back below $25 in a fairly short period of time. Looking at the chart it seems that it has only had red candles since it hit its peak. I liked the stock before. Not excessively or blindly, but I think FirstSolar was doing a good job navigating the traitorous solar market. Knowing that it just reached above $35, I want to see if it fully deserves such a smacking with a focus that is a year or two out.
Future Guidance Disagreed With Analysts
Downgrades and disagreeing with analysts can be considered a relations faux pas when it comes to stocks. I am not really surprised that the company’s guidance was lower than analyst projections. I hardly think solar is out of the dungeon yet. It might just be on a lighter regimen of torture, but it is still down there. Analysts are too rosy when things are looking up, and too negative when things are looking down.
I do not think FirstSolar has any desire to be a hot solar growth stock again. Instead it is better off with conservative estimates rather than forgetting the history that brought the solar industry to its knees. The estimates from FirstSolar are ranges, and I would say they are fairly broad. It reflects the difficulty of accurately predicting future events, especially for something as tumultuous as solar.
The field has fundamentally changed. It is shifting away from the government subsidized field toward one that has to win on its own merit. That means lower costs and greater efficiency. On that note the most recent earnings call announced that the company achieved cell efficiency of 18.7%. That seems really high for thin film cells, which means FirstSolar is really coming along with making thin film competitive.
FirstSolar is not sure how all of this will play out in terms of revenues and earnings. It gives these ranges instead and they are lower than analyst projections. I think $70M-$100M in operating income and an EPS of $0.70-$0.89 for Q1 is fine for starters. Right now FirstSolar has a -$1.11 EPS TTM. A conservative path to positive earnings is acceptable as an early effort. Besides, beating estimates is not unheard of. Promising less is prudent with so much uncertainty.
I find conservative estimates completely acceptable. I knew solar was not going to have an easy time of it. Now that the stock is at $25 it might be worth taking a position or selling some $25 or $26 puts a few months out. If I did take a long position I would be selling covered calls all the time to lower my adjusted cost basis. Solar will remain rocky, and I want to get as much of a return as possible whenever I can.
FirstSolar Does Not Stand Alone
Solar is a big industry. SunPower (Nasdaq: SPWR) produces monocrystalline solar panels with the highest efficiency of any style of solar panels. The goal for them is to get it cheap enough that on a per watt basis it is the same or cheaper as other style panels. The benefit of their cells is that they can produce more energy in a smaller area than other panels.
Analysts are moving SunPower too. Upgrades and simple statements regarding SunPower’s future potential have helped the stock rise. Analysts can’t keep their hands off the solar industry. SunPower has some serious losses, and I thought it was headed for profitability but the EPS TTM is actually indicated that the company’s return to consistent profitability might be delayed or derailed.
I like SunPower’s technology, because efficiency is really important. However, with its losses and debt-to-equity ratio of around 0.8, I prefer FirstSolar. FirstSolar has a debt-to-equity ratio of around 0.15.
If you are the adventurous you can take a look at Chinese polycrystalline solar panel makers. Jinkosolar (NYSE: JKS) is the one I tend to focus on most. I couldn’t tell you exactly why, though. I can say that I dropped LDK off my watchlist because of debt problems. JKS is down from the $9s, but it does this pretty often. It will make a run up before heading back into a decline and then languishing for months. The news from the company is always flowing. The Chinese firms get help from the government, but sometimes have to pay the piper for it. Trade disputes between China and the US or EU get in the way.
JKS, like most Chinese companies, is a roll of the dice. China is still a major player in the solar market so it would be wrong to exclude it. JKS has heavy losses. Its EPS TTM is sitting at below -$7 with a debt-to-equity ratio around 1.6. I would say that JKS is a trader’s stock, and not an investor’s.
China is particularly interested in building solar capacity and they will go with Chinese firms. If JKS is chosen as part of the largest products it could be a good sign for the company. JKS could be said to be in slightly better shape than competitors Yingli and LDK. It is still a roll of the dice. Information is severely limted, so informed speculation is all we have right now. Stick with FirstSolar.