Monday, May 2, 2011

First Solar (NASDAQ: FSLR): Q1 Earnings Preview 2011

First Solar Inc. (NASDAQ: FSLR), the world's largest maker of thin-film solar-power modules, is scheduled to release its first quarter earnings after the closing bell on Tuesday, May 3, 2010. Analysts, on average, expect the company to report earnings of $1.16 a share on revenue of $544.37 million. In the year ago period, the company reported earnings of $2 per share on revenue of $567.96 million.

First Solar Inc. engages in the design, manufacture, and sale of solar electric power modules using a proprietary thin film semiconductor technology. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. First Solar has the lowest production costs in the industry for its thin film cadmium telluride panels.

In the preceding fourth-quarter, the Tempe, Arizona-based company's net income was  $156.0 million or $1.80 per share, compared to $141.6 million or $1.65 per share, in the year-earlier quarter. Revenue declined to $610 million from $641 million in the same quarter of 2009. Analysts, on average, expected the company to report earnings of $1.76 a share on revenue of $647.37 million.

At its last earnings call in February, the company raised its earnings outlook for fiscal year 2011, while lowering the upper-end of its sales forecast.  First Solar now expects earnings of $9.25 to $9.75 per share, and net sales of $3.7 billion to $3.8 billion. , Previously, the company expected earnings of $8.75 to $9.50 per share, and net sales of $3.7 billion to $3.9 billion.

Solar companies have sought to position themselves for market share gains outside of Europe, the world's primary solar-power market, after governments there have cut subsidies that have supported the sector over the past decade. Installations are expected to rise in the U.S., Canada and other markets, although Europe will continue to account for the majority of global photovoltaic installations this year.

Going forward, the company will be ramping up its production capacity to further lower its cost of production through economies of scale. At the end of the third quarter of 2010, the company operated with an annualized global manufacturing capacity of approximately 1.4 GW. The company expects to increase its manufacturing capacity to 46 production lines by the end of 2012, with an annualized manufacturing capacity of more than 2.7 GW.

First Solar, which makes thin-film solar panels that are cheaper to make but convert less sunlight into electricity than traditional silicon solar panels, was the world's top solar-panel supplier last year. While the company remains a top supplier, it faces increasing competition from low-cost Chinese solar-panel makers that are also expanding production to meet growing global demand.

First Solar remains focused on Europe, where the majority of demand is, as well as the U.S. and Canada, where the company has about 2,000 megawatts of large solar farms in various stages of development. The company is also rapidly expanding in emerging markets like China and India, that have a lot of potential, but where demand isn't yet as strong as it is in Europe.

2010 continued the significant growth of the solar market throughout the country with new markets in China and the USA advancing their demand for solar panels. Solar industry as a whole has benefited from continued strong demand thanks to growing awareness about global warming, skyrocketing oil prices, cheap financing and technological advances. Companies involved in the production of semiconductors used in solar panels have enjoyed a positive quarter. Many have experienced rising shipments over the last few quarters, resulting in a sequence of record quarters. The world is becoming increasingly environmentally conscious. Both commercial and private demand for solar power is rising. Solar options are becoming more attractive as more governments provide better options for buildings producing solar power to feed into and out of the grid as required. Meanwhile, US President Barack Obama has called for 80 percent of the nation's electricity to come from clean sources by 2035.

Meanwhile, the largest market for solar, Germany, is slated for a significant decline in 2011. Hinging on the volume of new solar power capacity additions, the government may cut incentives by almost 12%, effective July 2011. However, if installations exceed 7.5 gigawatts, subsidy cuts may reach almost 15%.

First Solar said recently that it plans to build a $300 million manufacturing center in Arizona that would roughly double the solar-panel maker's U.S. production capacity. The company said the facility, when functioning at capacity, could produce more than 250 megawatts of advanced thin-film photovoltaic modules a year.

Among other developments, First Solar Inc. said recently that Bruce Sohn, its president of operations, will leave at the end of the month. Sohn will not be replaced, and First Solar didn't specify why he was leaving.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 12.79 and PEG ratio (5 yr expected) of 0.67. In terms of stock performance, First Solar shares have lost nearly 8 percent over the past year.

Full Disclosure: None.
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