First Solar, Inc. (NASDAQ:FSLR) has been a rare success story in the solar industry, overcoming tough industry conditions by focusing on large-scale utility-based projects that are simply too large for most of its smaller competitors to take on. But what really attracted investors to the stock recently were moves to boost its efficiency by buying TetraSun, which they hope will push First Solar, Inc. (NASDAQ:FSLR) into the top echelon of performance and open new markets to the company. Let’s take an early look at what’s been happening with First Solar, Inc. (NASDAQ:FSLR) over the past quarter and what we’re likely to see in its quarterly report.
Stats on First Solar
| Analyst EPS Estimate | $0.53 |
| Change From Year-Ago EPS | (68%) |
| Revenue Estimate | $721.08 million |
| Change From Year-Ago Revenue | (25%) |
| Earnings Beats in Past Four Quarters | 3 |
Source: Yahoo! Finance.
What’s behind the big drop in First Solar earnings this quarter?
Analysts have chopped their calls on First Solar, Inc. (NASDAQ:FSLR) earnings rather dramatically in recent months, slashing June-quarter estimates by more than half. Yet they see the long-term impact on earnings as minimal, actually raising 2014 estimates by about 1%. The stock has generally maintained its positive response to enthusiastic investors, rising about 8% since late April.
First Solar’s first-quarter report disappointed investors who had hoped for even more from the company after its big April announcements. Falling backlog of major projects and a big drop in gross margins that put the company in line with rival SunPower Corporation (NASDAQ:SPWR)‘s margin levels reflected the lack of interest in lower-efficiency solar modules, with SunPower Corporation (NASDAQ:SPWR) benefiting from its long-held emphasis on high-efficiency production.
In particular, First Solar’s efficiency disadvantage has largely kept it out of the fast-growing residential and small-scale commercial side of the solar business. With Solar City and SunPower Corporation (NASDAQ:SPWR) both growing their exposure to the residential solar market through leasing and other financing programs, they’ve not only found new outlets for modules but are building a more comprehensive solar-services business that offers higher margins and deeper relationships with customers. Moreover, if residential solar takes hold, it could threaten the utilities that make up First Solar’s major customer base.
One unanswered question is what First Solar plans to do with $427.7 million in cash proceeds from a sale of 9.45 million shares of its stock in June. With both SunPower and SolarCity also having raised capital recently, it’s clear that capital demand is strong, but what First Solar actually does with that money will go a long way toward establishing its strategic direction going forward.
In the First Solar earnings report, watch for the company to fill in the blanks on those strategic details, as well as commenting on news last month that China plans to boost its solar capacity in the next couple of years to help support its domestic solar producers. First Solar had looked forward to a shakeout in the Chinese solar industry putting it in a better competitive position, but it might actually produce better earnings if it focuses its efforts instead on catching up in lucrative areas like residential solar.
The article Why First Solar Earnings Could Stay Stuck in the Shade originally appeared on Fool.com is written by Dan Caplinger.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.
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