Is First Solar a Bargain Here?

With shares of First Solar (NASDAQ:FSLR) trading at around $26.25, is FSLR an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

First Solar has had a rough two years in regards to stock performance. Is there potential moving forward?

First Solar is one of the most fiscally responsible companies in the solar industry. This is important for two reasons. One, it helps buy time while waiting for industry conditions to improve. Two, it means First Solar will be more likely to weather a global economic storm than the majority of its peers. Other positives include annual revenue growth, solid guidance, and a forward P/E of just 8.03. However, there also several negatives, which include:

  • Drop in average selling prices
  • Industry relies heavily on subsidies and grants
  • Continuous decline in margins
  • Supply glut
  • Annual EPS declines
  • High costs

Some of these negative tie into one another. This article can essentially be summed up in one sentence: First Solar must reduce costs. This is clearly evident by the difference in revenue and EPS performances. First Solar is undergoing massive restructuring to accomplish the goal of reducing costs. Unlike many other companies in the industry, First Solar has identified upcoming headwinds and is steering itself away from them, which will give it a greater chance to thrive in the future – not just survive.

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The chart below compares fundamentals for First Solar, SunPower Corporation (NASDAQ:SPWR), and Suntech Power Holdings (NYSE:STP). First Solar has a market cap of $2.29 billion, SunPower has a market cap of $1.28 billion, and Suntech has a market cap of $74.20 million.

FSLR

SPWR

STP

Trailing   P/E

N/A

N/A

N/A

Forward   P/E

8.03

19.53

N/A

Profit   Margin

-2.86%

-14.56%

-44.18%

ROE

-2.66%

-31.04%

-86.50%

Operating   Cash Flow

$762.21 Million

$28.90 Million

 $215.50 Million

Dividend   Yield

N/A

N/A

N/A

Short   Position

36.70%

N/A

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong   

The debt-to-equity ratio for First Solar is stronger than the industry average of 0.40. It’s also significantly stronger than the debt-to-equity ratios for SunPower and Suntech.

Debt-To-Equity

Cash

Long-Term Debt

FSLR

0.16

$1.00 Billion

$563.04 Million

SPWR

0.87

$457.49 Million

$865.55 Million

STP

2.82

$473.70 Million

$2.26 Billion

 

T = Technicals Are Weak

First Solar has had its ups and downs over the past three years, but it has been mostly downs.

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1 Month

Year-To-Date

1 Year

3 Year

FSLR

3.55%

-14.93%

7.01%

-78.36%

SPWR

-9.29%

91.10%

71.84%

-43.50%

STP

-68.85%

-73.33%

-86.17%

-97.13%

 

At $26.25, First Solar is trading below its 50-day SMA and 100-day SMA, but above its 200-day SMA.

50-Day   SMA

29.34

100-Day   SMA

29.06

200-Day   SMA

24.25

 

E = Earnings Are Weak          

Revenue has consistently improved on an annual basis, but earnings have been heading in the opposite direction. If First Solar can find a way to cut costs, it will be a winner. But that’s much easier said than done.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

1.25

2.07

2.56

2.77

3.37

Diluted   EPS ($)

4.24

7.53

7.68

-0.46

-1.11

 

When we look at the last quarter on a year-over-year basis, we see significant improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   millions

660.35

497.06

957.33

839.15

1.08B

Diluted   EPS ($)

-4.74

-5.20

1.27

1.00

1.82

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Do Not Support the Industry

With a supply gut and economic conditions not favoring subsidies and grants, trends do not support the industry at the moment.

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Conclusion

The industry is weak, and the global economy is on shaky ground. These are two major negatives for First Solar. On the other hand, if the industry survives, First Solar should excel. There will most likely be years of challenges ahead. Therefore, the stock might take continued abuse.

There is excellent long-term potential, but based on current industry and economic conditions, First Solar is a WAIT AND SEE.

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