Is The Time Right For First Solar, Inc. (FSLR)?

General Electric has offered solar products for utility, commercial, and residential customers for some time now.  In 2010, they announced that their solar efforts would focus on the thin-film PV market.  I’m actually very optimistic on GE’s solar efforts both because of its size (lots of resources to use in their research) and the fact that their products are backed up by GE’s immense customer service network, a feature that smaller companies cannot provide.

3M has been quietly producing solar films for almost three decades.  In 2009, the company formed a renewable energy division, aimed at nurturing 3M’s solar and wind divisions.  Just last year, 3M announced the construction of a new solar manufacturing site in China.  With companies of this scale getting involved, the technology may very well advance quicker than expected.

Valuation and Conclusion

At a glance, First Solar may appear cheap, but I think the valuation of the company is just about right.  As the company restructures its operations and reduces capacity, naturally earnings will drop for a period of time.  The company is expected to report $4.61 per share for 2012, and this is expected to decrease to $4.01 and $3.38 in 2013 and 2014, respectively, and earnings should stabilize once the restructuring takes effect.  However, the company has a strong balance sheet with more cash on hand than debt, so this should help the company maintain a good valuation.

So, while it may sound cheap that First Solar trades at just 7 times earnings, I think it’s pretty fair considering the uncertainty of the next few years while the company gets rid of its excess capacity.  Make no mistake, this company is in virtually no danger of going bankrupt, however I want to see the earnings declines stabilize before putting money behind First Solar.  Oh, there is that rumor that keeps popping up about the company being a takeover target…

The article Is The Time Right For This Solar Giant? originally appeared on Fool.com and is written by Matthew Frankel.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.