First Solar Beats Expectations On Moapa Project Sale

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First Solar  (NASDAQ:FSLR), the largest U.S. solar equipment manufacturer, published its Q1 earnings on Tuesday, posting a surprise profit while beating market expectations on revenue, driven by the sale of its Moapa project, although this was partially offset by weaker third-party module sales.  While revenues grew by around 170% sequentially to $892 million, adjusted earnings stood at $26.4 million. The company also boosted its outlook for the year, raising its full-year adjusted EPS range to $0.25 to $0.75 from its previous estimates of break-even to earnings of $0.50 per share. Below we take a look at some of the takeaways from the company’s earnings release.

We have a $35 price estimate for First Solar, which represents a small premium over the current market price.

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Moapa Drives Revenues

Much of First Solar’s sequential revenue increase was driven by the sale of the Moapa project, for which the company recognized 100% of revenues over the quarter. However, this was partially offset by a $179 million decline in module sales, as First Solar’s current generation Series 4 modules are less competitive compared to c-Si panels, given their lower rated power outputs and the sharp decline in the prices for silicon based panels.  Gross margin for the quarter stood at 9.4% compared to about 2% in the prior quarter. While the increase in gross margins was primarily a result of project impairments during Q4, margins were still well below the year-ago period (32% in Q1’16).  This is primarily due to the Moapa project, which was acquired as a late-stage development, causing First Solar to pay a significant development premium, resulting in lower margins compared to its typical utility scale projects. That said, First Solar saw some improvement to its order book, with expected shipments as of May 2 2017 rising to about 3 GW, compared to about 2.8 GW at the end of 2016, driven by close to 0.6 GW in total bookings through this year.

Series 6 Migration Progressing As Planned

2017 is expected to be a transitional year for First Solar, as it looks to revamp its manufacturing operations to produce the new Series 6 module that it expects to launch in 2018. The company noted that the process of migration was on track, with production at its Ohio and Malaysia facilities expected to commence in Q2 2018 and Q3/Q4 2018, respectively. We expect the Series 6 module to be much more competitive, given that its conversion efficiencies are expected to stand at over 18% at launch, well ahead of the 16.6% efficiencies offered by current Series 4 modules. Moreover, the lower capital expenditures (roughly 40% lower per watt of manufacturing capacity) for the product should also help to keep pricing low (related:Will First Solar’s Series 6 Gamble Pay Off?). While the company expects to end Series 4 production in 2018, it noted that over half of the supply of the panels have already been booked.

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