First Solar, Inc. FSLR issued 2018 guidance at its 2017 Analyst Day, held yesterday. Along with the issuance of full-year outlook, the company launched its latest product line — Series 6 photovoltaic (PV) module. Both the news boosted the company’s share price by 7% on Dec 5.
2018 Outlook
First Solar expects to generate revenues in the range of $2.3-$2.5 billion during 2018, with solar power systems net sales constituting 75-80% of the total net sales; while the rest will come from third-party module sales. Notably, this guidance when compared with the top-line range of $3.0-$3.1 billion expected for 2017 reflects an annual decline of 19.4-23.3%. Moreover, $2.4 billion — the mid-value of the guidance range — came in slightly below the Zacks Consensus Estimate for 2018, pegged at $2.41 billion.
On the bottom line front, the company projects GAAP earnings per share (EPS) in the range of $1.25-$1.75, which includes production ramp costs of approximately $60 million and production start-up expenses of $110 million, associated with the deployment of Series 6 capacity in 2018 as well as projected restructuring related charges of $10 million. This bottom line guidance also fell short of the company’s 2017 expected EPS range of $1.55-$2.20, by 19.4-20.5%. On a bright note, $1.50 — the mid-value of the earnings guidance range — was above the Zacks Consensus Estimate for 2018, pegged at $1.13.
Coming to First Solar’s cash generating expectations for 2018, the company projects to generate operating cash flow worth $100-$200 million and witness net cash balance in the range of $1.6 to $1.8 billion at 2018-end. Both the figures compared unfavorably with what the company expects at 2017-end, primarily driven by increased cost in relation to the production of Series 6.
Notably, in line with this, the capital expenditure for 2018 is projected in the range of $650-$750 million reflecting a year-over-year increase of 50-62.5%.
Launching Series 6 Module
While First Solar’s 2018 outlook did not reflect any major upside on a year-over-year basis, the unveiling of its new PV Module — Series 6 — proved to be a major breakthrough.
The company expects to start commercially manufacturing these modules by early second quarter of 2018, in line with its earlier projections. On being operational, Series 6 will have an annualized output of 600MWdc at full capacity.
First Solar projects this product to enter the commercial market with a power rating of 420-445 watts and conversion efficiency of over 17%. These modules will provide more watts per lift than comparable crystalline silicon solar panels and can be installed on virtually any ground-based PV mounting system.
Moreover, First Solar unveiled plans to double production capacity of Series 6 modules at its Vietnamese production facility, which is currently under construction. Following this, annualized production capacity at this, when fully operational, will be 2.4GWdc. Cumulatively, from its facilities in Perrysburg and Kulim, Malaysia the company will be able to attain manufacturing capacity of approximately 5.4GWdc by 2020, for Series 6 modules. Toward this end, First Solar will invest $1.4 billion.
Our View
Realizing the harmfulness of the carbon emissions from the consumption of fossil fuel, demand for alternative energy sources has been on the rise. In particular solar energy has gained the maximum popularity due to its easy and cheap availability as well as declining price of solar panels. Notably the United States is a pioneer in the solar industry, despite Trump havingwalked out of the Paris agreement.
Evidently, according to the U.S. Energy information Administration (EIA), the nation’s utility-scale solar power capacity will reach 31 gigawatt (GW) by the end of 2018 from the 2016 level of 22 GW.
Being a steady performer, First Solar is gaining further momentum with the increasing demand for solar energy in the United States and across the globe. However, the solar market is very competitive owing to the presence of other solar majors like JA Solar Holdings JASO, Canadian Solar, Inc. CSIQ and SunPower Corporation SPWR, among others.
In response to the highly competitive and dynamic PV market environment and customer demand for higher efficiency modules, First Solar started working on its next-generation PV module — Series 6. Notably, its under-mount frame is designed to enable a horizontal stacking configuration, optimizing shipping density, reducing breakage and minimizing waste. Also, it can deliver up to 8% more watts per connection than conventional silicon modules.
The module also facilitates minimum onsite engineering thereby reducing material cost. Therefore we may expect Series 6 to offer a better position to First Solar in the market. Although the outlook for 2018 looks dimmed for now, it’s primarily owing to increased cost for the production of Series 6 modules. We expect the company to gain substantially once production starts at full capacity and positive accretion is realized from the sale of this latest module. If this happens, then First Solar’s 2018 outlook may improve, going forward.
Price Performance
First Solar stock has returned 82.2% over a year, outperforming the 21.6% rally of the industry it belongs to. This may have been driven by the increasing demand for the company’s renowned PV modules.
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Zacks Rank
First Solar currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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