First Solar, Inc. (NASDAQ:FSLR) soared last week after a more optimistic presentation than was expected at their analysts’ day on Tuesday.
After jumping almost 50% in a week, and now trading at a price that is beyond the consensus price target, is it time to take profits, or is First Solar, Inc. (NASDAQ:FSLR) just getting warmed up?
Analysts’ Day Optimism
The analysts’ day presentation by First Solar, Inc. (NASDAQ:FSLR) was much more optimistic than expected, and the good news seemed to keep coming in all day long. The first surprise was the company’s earnings guidance for the current year. Before Tuesday, the consensus was for $3.51 per share on revenue of $3.12 billion, so analysts were pleasantly surprised to hear that the company was projecting between $4 and $4.50 per share on sales of almost $4 billion.
The company discussed the results of a lot of their current projects and details about their margins. The details of these projects are too extensive to discuss thoroughly here, however virtually everything with the company is progressing better than anyone thought.
Looking ahead, First Solar projects earnings between $2.50 and $4 in 2014 and between $4 and $6 in 2015. The lower earnings in 2014 were explained as the result of financing several new projects scheduled to begin next year. After this news broke, several analysts revised their projections upward, but even after that, the consensus still sits at $3.23 and $3.91 per share in the next two years. So, if the company even produces earnings in the middle of their new projections, they will have topped the 2015 consensus by 28%. Bear in mind that even after the recent gains, First Solar, Inc. (NASDAQ:FSLR) trades for just 8.3 times forward earnings, and has over half a billion dollars in net cash on its balance sheet.
The Solar Industry: More Mainstream Than You Think
In full disclosure, I am a huge fan of the solar industry as a solution to the world’s increasing energy demands over the next several decades. I truly believe that solar energy is the clean energy source of the future, and that it will become more prevalent than wind, geothermal, and nuclear power combined. Energy experts project that world energy demand will increase from about 10 TW (Terawatts) today to about 50 TW by the year 2050. Solar is the only form of renewable, clean energy that will be practical to implement on such a large scale.
As a result, a lot of companies that are considered household names are devoting considerable time and resources to developing solar technologies in order to capitalize on this. For example, 3M Co (NYSE:MMM) formed a renewable energy division in 2009 in order to expand its solar and wind programs, which have been in existence for almost 30 years now. 3M Co (NYSE:MMM) is one of the leading producers of solar films, and just last year, the company announced that it plans to build a new manufacturing facility for its solar products in China.
Honeywell International Inc. (NYSE:HON), another favorite of mine, has already produced some very innovative solar products. For example, the company’s SmartGrid PV (photovoltaic) module is the first solar panel in the world that is manufactured with an integrated AC module, producing 120 volt AC power on its own, right out of the box. These two companies represent just a small fraction of the large industrial names that are investing in solar power, and if you are not comfortable putting your money behind a volatile name like First Solar, these may be a nice alternative way to play the coming solar boom.
The Bottom Line
The main reason for the extremely positive reaction to the company’s presentation is that there has been virtually nothing but negative sentiment on the solar industry for the past couple of years. As such, First Solar, Inc. (NASDAQ:FSLR) has been one of the most shorted stocks in the market. As of the end of 2012, short interest in the company amounted to a staggering 43% of the float. Although the recent bullishness has caused many shorts to cover, First Solar still has short interest of 27%. This leads me to believe that a positive surprise when the company reports earnings on April 29 could lead to even more short covering and another strong rally.
Regardless of whether that happens or not, for those with the stomach to ride out the roller coaster ride that is certain to take place in solar stocks as the industry gets its bearings, First Solar, Inc. (NASDAQ:FSLR) could prove to be a lucrative investment for decades to come.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends 3M.
