First Solar Q3 Earnings Preview: International Pipeline, Tech Improvements In Focus
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We will be watching two key trends when First Solar (NASDAQ:FSLR), the largest U.S. solar company, reports Q3 2015 earnings on Thursday, October 29. [1] Firstly, we will be keen to hear of the company’s progress in bolstering its international utility-scale projects business, as contracting activity in the domestic market slows down. Secondly, we will be interested to see how the company is executing on its aggressive technology and conversion efficiency roadmap.
Our $60 price estimate for First Solar represents a 20% premium over the current market price.
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Expanding The Projects Business Overseas
While the United States has been the primary driver of First Solar’s utility-scale business since its inception, the company has wound down on most of its lucrative legacy projects in the country, and based on its project pipeline (Q2 2015), most of its U.S. project activity will end by 2016. The company has around 19 projects projects under way in the U.S. with a total capacity of roughly 2.3 GW (including sold and unsold projects with power purchase agreements). [2] Now, signing on sizable new projects in the United States may be increasingly difficult, given that the Investment Tax Credit for utility scale projects is poised to drop from 30% to 10% by year-end 2016, while many utilities companies already have projects or PPAs in place to meet their near-term requirements under the Renewable Portfolio Standards requirement. Given the conditions in the U.S. market, it’s safe to say that much of First Solar’s growth will come from international markets. While overseas projects account for just about 20% of the company’s total utility-scale project pipeline (3.3 GW), over 60% of its potential booking opportunities (16.7 GW) during the second quarter came from international markets. [3] We will be watching First Solar’s progress in converting these booking opportunities into orders.
Executing On The 16.2% 2015 Exit Efficiency Target
First Solar has been making solid improvements to its Cadmium-Telluride based module technology. During the second quarter, the company’s panel efficiencies grew by 70 basis points sequentially to 15.4% while the efficiencies of its best production line jumped to about 16.2%. Notably, the company is now looking to upgrade all its manufacturing lines to produce 16.2% capable panels by the end of this year, allowing for an impressive 180 basis point jump over average efficiencies in Q4 2014. [4] This development should put the company ahead of many polycrystalline panels in terms of efficiency. Moreover, the firm says that it is able to manufacture these modules at costs of under $0.40/watt (excluding selling costs), which should put it in the vicinity of some of the best Chinese module producers. The development has other advantages as well. For instance, it will help to improve manufacturing capacity – in terms of annualized rated capacity produced – given the higher energy density of panels. This could prove to be an important incentive, since the company is already sold out of module capacity for 2015 and most of 2016.
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