First Solar Beats Expectations, Prepares For A Transitional 2017

by Trefis Team
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First Solar
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First Solar  (NASDAQ:FSLR), the largest U.S. solar manufacturer, posted a smaller than expected adjusted net loss for Q4 2016, while beating revenue estimates, despite tough pricing conditions and oversupply in the global solar market. [1] However, on a GAAP basis, the company posted its biggest-ever net loss, as it took charges relating to restructuring its manufacturing operations. Below we provide some of the key takeaways from the company’s earnings and take a look at what to expect in 2017.

We have a $40 price estimate for First Solar, which represents a 10% premium over the current market price.

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Performance Over Q4

First Solar’s Q4 net revenues declined by about 49% year-over-year to $480 million, amid a decline in panel pricing and lower systems revenues following the completion of the Taylor, East Pecos, Astoria and Butler projects. Systems sales as a percentage of overall revenues declined from 69% in the prior quarter to 48% in Q4. The firm’s gross margins also trended lower to about 13%, amid a less favorable project mix, weaker module pricing and a non-cash charge relating to the write-down in value of the Barilla Solar Project. While panel pricing trended significantly lower over 2016 (down ~35%), First Solar indicated that it was seeing some signs of stabilization.

FSLR_Q4_1

2017 Will Be A Transitional Year

Last November, First Solar said that it would be accelerating development of its Series 6 module, which it will now launch in 2018, while cancelling development of the Series 5 module that it was slated to roll out in 2017, as it wouldn’t have been very competitive in current market conditions. While this means that First Solar will have to compete using its older Series 4 modules (which have a low 120 watt capacity) through 2017, it should help the firm improve its margin profile in the medium-term. The conversion efficiencies for Series 6 modules are expected to stand at over 18% at launch, well ahead of the 16.6% efficiencies offered by current modules. Manufacturing costs per watt and capex per watt are expected to be lower by 40% and 50%, respectively, compared to Series 4. First Solar will work to retool its factories in Ohio and Malaysia over 2017, with plans to produce 1 GW of Series 6 over the second half of 2018.

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Notes:
  1. First Solar Q4’16 Earnings Presentation []
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