First Solar Had A Solid Q2, But Contracting Remained A Mixed Bag

First Solar (NASDAQ:FSLR), the largest U.S. solar equipment manufacturer, posted a stronger than expected set of Q2 2016 numbers, driven by higher module shipments and the sale of its Kingbird project. Although the firm has been faring well operationally, running its manufacturing facilities at full capacity while cutting per-watt module production costs and boosting its best-line exit efficiencies (30 bps improvement between March and August), things were somewhat mixed on the contracting front. ^[1]

First Solar added about 0.8 GW of bookings year-to-date at the end of Q2, marking a year-over-year decline of about 38%. The revenue backlog also declined from $6.9 billion at the end of 2015 to $6 billion as of August 3, driven partly by a greater mix of module-only sales. The firm’s book-to-bill ratio for the year also stands at below 1. There could be a couple of factors impacting the firm’s bookings. Firstly, there is greater competition from smaller U.S. and international firms in the project development space. Secondly, strong global module manufacturing capacity expansions are also weighing on panel and consequently systems pricing. Additionally, contracting activity in the U.S. – First Solar’s principal market – is also facing headwinds as the the Obama Administration’s Clean Power Plan was stayed in federal courts earlier this year. The strong project build-up in anticipation of the December 2016 expiry of the U.S. solar investment tax credit (which was eventually extended) could also be weighing on contracting activity.

We have a $62 price estimate for First Solar, which is roughly 20% ahead of the current market price.

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1. First Solar (FSLR) Mark R. Widmar on Q2 2016 Results – Earnings Call Transcript, Seeking Alpha, August 2016 [↩]