Why has First Solar Failed To Deliver Returns Over The Last 5 Years, Despite Growing Solar Installations?

by Trefis Team
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First Solar’s (NASDAQ: FSLR) stock has dropped from $68 in September 2014 to $62.80 in September 2019. This drop comes as a surprise, as solar installations have seen steady growth globally, over this period. The fall was driven primarily by a drop in the P/E multiple, a modest drop in revenue, and an increase in shares outstanding. We expect things to get better in 2019, with the launch of the new Series 6 panels, helping drive up First Solar’s revenues and margins.

View our interactive dashboard analysis Why has First Solar’s stock remained flat over the last 5 years?


Globally, solar installations are up 2.5x from 2014 to 2018, but shipments by First Solar have grown just 1.5x in the same period

  • Global solar installations have grown 2.5x between 2014 and 2018, and are expected to grow another 21.35% YoY for 2019.
  • First Solar saw steady growth in installations from 2014-2016, but there was a drop in 2017 as demand slowed down a bit, and in 2018 First Solar themselves scaled back on production of their series 4 modules, for the expected launch of the Series 6.
  • 2019 Installations are expected to be around 5.51 GigaWatts, up about 100% YoY, amidst high demand for the new, more efficient Series 6 panels.
  • Another factor affecting First Solar is the drop in selling price of their products, amidst increasing competition and better technology.

 

We break down the change in First Solar’s stock into 4 factors:
Stock Price = (Revenue x Margins / No. of Shares) x P/E Multiple

 

First Solar’s revenue has dropped from $3.39 billion in 2014 to $2.24 billion in 2018, but we expect it to grow to around $3.3 billion in 2019

  • First Solar’s revenue grew to $4.11 billion in 2015, from $3.39 billion in 2014 due to a rapid growth in installations, on the back of strong demand growth.
  • However, even with further growth in installations, this number dropped to $2.9 billion in 2016, due to increased competition driving down selling prices.
  • 2018 saw a drop in revenue to $2.24 billion, as First Solar themselves scaled back on Series 4 module sales, while ramping up Series 6 production at the same time.
  • We expect revenue in 2019 to grow to $3.3 billion on the back of strong demand, and the launch of the Series 6.

 

Net Income Margin has dropped from 11.7% in 2014 to 6.4% in 2018, but we expect it to jump up to 15.4% in 2019

  • Net Income Margins grew from 2014-2016, even though there was an overall drop in revenue over this period, due to the company’s efforts to cut costs amidst a drop in module selling prices.
  • In 2017 and 2018, net margins dropped as there was a drop in installations of the Series 4 modules, and the added production costs for the new Series 6.
  • We expect net income margins to be around 15.4% for 2019, about 2.4x 2018 net margins.

 

A look at the trend in First Solar’s P/E multiple and how it compares with that of Canadian Solar, a close competitor

  • First Solar’s P/E multiple has declined from 17.4x to 13.3x over the past 5 years, due to increased global competition in the projects space (which has traditionally been higher-margin for First Solar) and also potentially due to a less conducive regulatory environment in the U.S.
  • However, the P/E multiple peaked at 35.6x in 2018, on the back of high expectations for the new Series 6 panel range.
  • As of 2019, the P/E multiple has stabilized around 13.3x.
  • Canadian Solar saw a similar trend from 2014-2016, with its P/E multiple almost slashed in half.
    Its P/E multiple now hovers around 5.5x earnings.

 

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