First Solar (FSLR, Financial) recently posted its third-quarter results which attracted a negative market sentiment. The company missed consensus estimates on both top and bottom line. Its revenue declined 30% year-over-year to clock $889.3 million, whereas Wall Street was expecting it to be $1.05 billion. However, sequentially revenue was up 63%. The negative year-over-year growth was on account of a very strong third-quarter of 2013, on the back of the sale of the ABW projects in Canada and also initial revenue recognition of Desert Sunlight.
A closer look at the results
Earnings per share also had a negative growth. The third-quarter earnings came in at $0.61 per share, representing a year-over-year decline of 73.2%. Analysts were expecting it to be $0.64 per share. The negative growth in earnings was on the back of poor top line performance as utility project sizes got scaled down. Had it not been for lower operating expenses, the EPS would have still been lower. The total operating expenses decreased 32.4% year over year to $105.5 million.
First Solar is however ramping up its production facilities in anticipation of robust demand next year. It is restarting the idle lines of capacity at Malaysia plant. This will add over 360 megawatts of capacity in 2015. Additionally, it is also adding to new lines of capacity in its Ohio facility. This will add another 100 megawatts of output next year.
Making good technology moves
Technologically, First Solar is encouraged by the progress of its CadTel technology. For example, in pre-production run of significant volume resulted in conversion efficiencies of up to 15.9%. This is in comparison to the current fleet efficiency of 14.2% in the third quarter. Although these improvements are not scheduled for roll out across the fleet until next year, but it shows the strength of technological advancements that the company is making.
The book-to-bill ratio for the first nine months of current fiscal stands at around 1.5. The company intends to keep the book-to-bill ratio of more than 1 and the recent progress shows that it is on the road to achieving that. A total 521 MW of new power-plant orders were booked in the third quarter, bringing the year-to-date figure to 1.7 GW.
The 141 megawatt AC Luz del Norte project located in Chile was the single-largest booking in the quarter. Moreover, in the U.K., in a joint-venture with BELECTRIC, it clinched a deal for 46 megawatt DC utility-scale power plant in southern England. This is the fourth project to be executed in joint-venture with BELECTRIC. More than 483,000 of First Solar's advanced thin film modules will be used to power the facility.
The bookings during the quarter also demonstrated the geographical diversity. Around 42% of bookings were from outside the United States, signifying the adoption of solar power is increasing. In addition to the projects in Chile and the UK, the company also recorded bookings in other parts of Europe, Israel and India. First Solar claims that total potential booking opportunity increased to 13.7GW DC as against 12.7GW in the prior quarter. This jump is on the back of continued growth in the U.S., Latin America and India.
Although First Solar revised its 2014 revenue forecast downward by about 2.6%, to a range of $3.6 billion - $3.9 billion versus earlier projection of $3.7 billion - $4 billion, the full-year earnings outlook remains unchanged in the range of range of $2.40 - $2.80.
The shares plummeted after the third-quarter results. In addition, the company's industry rival Canadian Solar(CSIQ, Financial) issued light fourth-quarter guidance in its third-quarter results. This resulted in another 3% decline on the street. Moreover, with crude oil prices at a four-year low, the selling pressure on solar stocks may persist in the near term.
Conclusion
At current prices, First Solar is trading at a forward P/E of less than 11, having lost around 10% on the Street. Looking at its increasing global footprint, order books and growth prospects in the long-term, it is a good buy, despite the weakness in its third quarter. It was up against a very strong third quarter of fiscal 2013.
