The Sun Is Shining On First Solar

Shares of solar module manufacturer First Solar Inc. (FSLR) are trading up more than 6% during the after-hours session following the company’s better-than-expected earnings report.  For the Q ended March 31st, the company reported EPS of $2/share, well ahead of analyst estimates of $1.63, on revenue of $568 million vs. estimates of $541 million.  Rev was up 36% year-over-year.  The earnings surprise came mainly as a result of increased demand for FSLR’s low-cost photovoltaic modules and increased production, partially offset by lower prices.

For FY 2010, management forecasted EPS of $6.85/share – $7.30/share vs. estimates of $6.25/share and revenue of $2.7 billion – $2.8 billion vs. estimates of $2.7 billion.  The EPS number included share dilution due to the acquisition of NextLight Renewable Power, but the revenue forecast was average at best.  The driving factor behind the ho-hum revenue guidance was a reallocation of module capacity from the company’s Systems business to meet stronger demand in Europe.

Generally speaking, solar companies are expected to report strong Q1 results merely due to the fact that so many fell into the red last year when sales plummeted on tighter credit conditions and oversupply.  FSLR, however, has posted surging revenue during the economic downturn as demand remains high for its products, which are less efficient than silicon-based panels but also less expensive.

From a technical perspective, FSLR is actually in a pretty interesting spot.  Shares closed up after-hours trading at $136.50, and as you can see on the chart below, this will push the company nearer towards breaking out of a 4-month base.  Current prices are denoted by the line, and a breakout would be completed by a push through $142.56.  I would recommend waiting for the breakout before opening up a position for several reasons.  First among them, and perhaps obviously, is that this is a sound buy-point based on the chart, and buying at the right levels is a big part of the battle.  Secondly, shares will have to show some continued strength to break out, and if you wait for it, you won’t fall into a trap where shares slide back down after an after-hours ramp.

Overall, I like the company and it’s one of the best plays in the sector.  FSLR is definitely executing, though you should keep an eye on their ability to generate organic growth.  A few more of these high-multiple acquisitions and I would definitely begin to worry. But until then, watch for the breakout, and be sure there’s some volume behind the move.

If you are interested in my in-depth analysis and trading setups for the hottest tech stocks, try a free trial to my new Tech Cheat Sheet Premium service.

Disclosure: No holdings in FSLR.