Pricing And Contracting Activity In Focus In Advance Of First Solar’s Q4 Results

First Solar (NASDAQ:FSLR), the largest U.S. solar equipment manufacturer, is expected to publish its Q4 2016 earnings in the coming weeks, reporting on a relatively challenging quarter that likely saw pricing and demand for solar products diminish worldwide. While First Solar’s financial performance is likely to hold up as it executes on its project backlog, new contracting activity is likely to have slowed down significantly. Below we take a look at the key trends to watch as First Solar reports earnings.

Trefis has a $40 price estimate for First Solar, which is roughly 25% ahead of the current market price.

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Project Backlog Will Drive Earnings, But Contracting Is Likely To Be Lackluster

First Solar had six projects that it was recognizing revenues on as of September 30, 2016, and we expect earnings for the quarter to be driven primarily by revenue recognition on the 119 MW East Pecos solar project and the Shams Ma’an project in Jordan. The firm also had about 2.2 GW of projects with executed PPAs that remain unsold or not contracted (on First Solar’s balance sheet), and there remains a possibility that some of the projects could be sold during the quarter, aiding revenues and cash flows. However, pricing on these projects could prove an issue, as the global power plant market has taken a turn for the worse, amid mounting competition, lower demand and a rising interest rate environment.

Contracting activity is also likely to decline, with customers delaying new project investments in anticipation of further pricing declines. First Solar’s overall shipments backlog (systems + third-party module) declined from 4.2 GW at the end of 2015 to about 3.6 GW as of November 2, 2016. The firm’s revenue backlog has also declined from about $6.9 billion at the end of 2015 to roughly $5.5 billion as of early November.

Weaker Panel Pricing

Pricing for solar modules is also trending lower, and this could also put pressure on First Solar’s margins. According to First Solar, prices for crystalline silicon panels declined by roughly 29% to $0.40 per watt at the end of Q3 2016, and there are likely to have been further declines in Q4 as well. This could prove an issue for the firm, as module only sales are accounting for a growing percentage of its sales mix as project contracting activity slows down. For instance, during Q3,  the firm added just about 250 MW of bookings, with third-party modules accounting for about 200 MW of the figure.

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