First Solar’s Stock Offering Indicates Rising Optimism

First Solar (NASDAQ:FSLR) has had a pretty good year so far with its stock price rising by over 70% since January on its upbeat earnings guidance for the year as well as the company’s move to diversify its product portfolio to manufacture higher efficiency silicon panels. Given the favorable conditions, First Solar now intends to sell an additional 8.5 million shares in a public offering, the proceeds of which are expected to help expand operations.

Indicates That There Are Profitable Opportunities In The Industry

While the solar industry has witnessed a few equity infusions in the past year through private placements, they were made primarily to debt-laden solar companies to meet working capital needs. However, First Solar’s situation is quite different since it has a very manageable debt load of less than $600 million while cash and securities stand at nearly $1 billion. We view the move as an effort to capitalize on the relatively attractive valuation of its stock. We also believe that it could indicate that the firm sees attractive opportunities to deploy additional capital, which is  a positive sign given the recent gloom in the solar industry.

The offer will involve the sale of 8.5 million shares along with the option for an additional 1.28 million shares that can be purchased by the underwriters of the issue. The company currently has around 88 million shares outstanding. The net proceeds  (after underwriting fees and other expenses)  from the offering are estimated at $458 million (based on a stock price of $56) and could raise as much as $527 million if the underwriters choose to exercise their options. ^[1]

New Capital Can Help First Solar Expand Projects And Further Its Global Business

In the preliminary prospectus for the stock offering, the company mentioned that the proceeds could potentially be used for acquiring solar power projects, making strategic investments or for enabling the firm’s geographic expansion.

While conditions in the solar market have been challenging over the last few years, First Solar’s projects business has partially helped it to isolate itself from the volatility. As of Q1, the company’s project pipeline stood at around 2.5 GW, translating to expected future revenues of around $8 billion. Most of the firm’s current projects are located in the United States, a market which has been growing rapidly. Between 2010 and 2012, utility scale solar installations in th U.S. grew by over 600%. ((SEIA)) While the additional capital could be put to use to buy new projects that are under development in the U.S., it could also help the company expand its business globally. During the firm’s Q1 conference call, the management indicated that it had around 5.5 GW in potential booking opportunities for solar projects with around two-thirds of the inquiries coming from regions such as Latin America, the Middle East, India and China. An equity infusion could help the firm invest in further developing its business overseas without having to take on additional debt financing.

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1. First Solar Preliminary Prospectus [↩]