Is First Solar Stock A Good Pick In A Post-Pandemic World?

by Trefis Team
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ConocoPhillips
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ConocoPhillips (NYSE: COP) and First Solar (NASDAQ: FSLR) are prominent conventional and renewable energy companies in the U.S., respectively. While both stocks have recovered to pre-Covid levels, COP remains a good pick to earn regular dividend income assisted by high benchmark prices. The slump in transportation and industrial demand negatively affected the oil & gas industry with benchmark prices observing a sharp contraction last year. Interestingly, sluggish energy demand did not pump the top line of companies such as First Solar as conventional oil stocks were hammered due to a recessionary environment. We compare the historical trends in revenues, margins, and valuation multiple of both companies in an interactive dashboard analysis, ConocoPhillips vs First Solar:  Which Stock Is A Better Bet? – parts of which are highlighted below.

1. Revenue Growth

ConocoPhillips’ growth has been much stronger than First Solar in the past few years, with COP’s revenue expanding at an average rate of 15% per year from $24.4 billion in 2016 to $36.6 billion in 2019, versus First Solar’s revenues growing at an average rate of 2% from $2.9 billion in 2016 to $3 billion in 2019. While the pandemic led to a 47% (y-o-y) decline in ConocoPhillips’ revenues in 2020, it was 11% (y-o-y) lower for First Solar.

  • First Solar’s two operating segments, Modules and Systems, contribute 48% and 52% of total revenues, respectively. Notably, the company’s modules business has observed strong growth in the past couple of years.
  • ConocoPhillips’ crude oil, natural gas, natural gas liquids, and other products contribute 57%, 27%, 2%, and 14% of total operating revenues, respectively. As energy product sales depend on benchmark prices, the company’s revenues have remained relatively stable in recent years. (related: Sluggish Times For ConocoPhillips Stock?)

2. Returns (Profits)

As both companies belong to different industries, we compare operating cash flow margin to compare profitability. In 2019, ConocoPhillips and First Solar reported 30% and 5.6%, respectively.

  • ConocoPhillips majorly focuses on returning cash as dividends to investors. In 2019, the company earned $36 billion in revenues, generated $11 billion of operating cash, paid $1.5 billion in dividends, and repurchased $3.5 billion of common stock.
  • On the contrary, First Solar has been investing operating cash and long-term debt on property, plant & equipment. (related: First Solar Stock Appears Undervalued In Comparison To Its Close Rival)

3. Risk

Per annual filings, ConocoPhillips reported $14.7 billion of long-term debt, $29.8 billion of total equity, and $62.6 billion in total assets. First Solar reported $237 million of long-term debt, $5.5 billion of total equity, and $7 billion in total assets. Thus, ConocoPhillips and First Solar’s leverage ratio stands at 2.1 and 1.3, respectively.

  • Higher financial leverage coupled with continued revenue growth is a boon for generating surplus equity returns.
  • Thus, high benchmark prices are a boon for ConocoPhillips stock.

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