There is a strong demand for solar power not only in the United States but also in the developing markets. Being one of the biggest solar companies, First Solar, Inc. (NASDAQ:O:FSLR) is well-placed to take advantage of the available opportunities. The company issued its outlook for the next year that was well in line with the Street analysts’ expectations. However, some analysts appeared to have expected much more than the company’s forecast, and that resulted in hammering the stock. Still, analysts’ are upbeat and failed to understand the need to dump the stock after the company’s guidance. It was an unfortunate thing that some solar energy shares have to bear the brunt of investors’ ire even for slight differences in expectations. Let’s look at some of the reasons to believe that this is a good stock to bet for long-term.
Strong Bookings
In the current year, demand for solar power would reach 8.5 Giga watts in the United States. That would increase nearly 30% to 11 GWs in the next year. As a leader, First Solar, Inc. (NASDAQ:FSLR) stands to gain from the expected growth in demand. The optimism for such a strong growth was the result of the federal tax credit that consumers can take advantage of since 30% of the systems’ costs were paid as a tax credit. Also, the tax credit would come to an end in the year 2017 for most of the solar panel systems. In the following years, it would drop down to 10% for commercial installations.
At the end of the third quarter, First Solar, Inc. (NASDAQ:FSLR) indicated that it was able to record 1.7 GW of fresh bookings and that the annual bookings reached 3.1 GW. The company is also planning to close the current year with a minimum shipment of 2.8GW and a maximum of 2.9GW. For the next year, the solar panel maker is projecting a modest growth of 3.5% only to 2.9 – 3.0 GW shipments. That was more due to the company coming under pressure due to the expiry of tax credits in the following year. Therefore, the next year would be a crucial factor for any solar firm. The company enjoys nearly 90% of the utilization rate. Backed by its strong balance sheet, the solar panel maker might boost its guidance for next year since it has the capacity to spend more for growth prospects.
Higher Quality Growth
One of the factors that would help First Solar, Inc. (NASDAQ:FSLR) was the high-quality growth as it was key to surviving in the solar power industry. Currently, the company appeared to have given a more conservative outlook in respect of the shipments. In fact, that was one of the reasons the stock was hammered recently. There are some companies that provide conservative guidance to be boosted as the year progresses. Solar panels seem to be one such opportunity to grow more than the company estimated currently. It all depends on how the company will close the current year.
If First Solar, Inc. (NASDAQ:FSLR) managed to ship about 2.9GW in the current year itself, then it can boost its forecast when it announces its fourth quarter results. Analysts have hopes that the company would resort to lifting its outlook from the current levels. Another factor was the average fleet conversion efficiency. The company was consistent in enhancing its efficiency level. In the year 2013, it was 13.2% and this is set to reach 15.5% in the current year and projected to grow to 16.2% in the next year. Aside from that, the company sees its lead line efficiency to be higher than 17% before the next year ends.
Analysts’ Remain Upbeat
When First Solar, Inc. (NASDAQ:FSLR) announced its outlook for the year 2016, investors punished the stock by as much as 10% as it fell short of some of the predictions. However, there are several analysts who were not worried about it and reiterated their positive outlook for the company’s, as well as, the industry. They cited the possible mix of upcoming projects, as well as, the potential belief that the initial outlook might get a boost as the year progresses. For instance, Janney Montgomery analyst, Michael Gaugler, reaffirmed his rating of ‘Buy’ on the shares of company suggesting that boosting of outlook would not surprise him. In fact, the company’s guidance exceeded its estimations and recommended his clients that the pullback only offered buying opportunities.
Also, Stifel Nicolaus analyst, Sven Eenmaa, said that First Solar, Inc. (NASDAQ:FSLR)’s current guidance was ‘somewhat conservative.’ He also reiterated his rating of ‘Buy’ pointing out that the forecast might be increased once the company starts getting money from several projects. The analyst also believes that the company was well-placed within the industry since it has a number of project wins. However, Stifel has slashed its price objective to $78 from $81 while JPMorgan Chase & Co. maintained its rating of Overweight on the company’s shares though it also reduced its price tag to $62 from 64. Credit Suisse has a price target of $65.
Three Reasons To Be Attractive
Investors can place their bet on First Solar, Inc. (NASDAQ:FSLR) shares for three reasons. One is their leadership position with solid utilization rate. The second reason is the solid demand coming in the next year before the expiry of the tax credits. The third was that the recent dumping of shares could well be a buying opportunity as the company is likely to increase its forecast next year. Most of the analysts retained their rating though the price tag was slashed. That was to give effect to the changed EPS estimations. Once the company revises its projection, the price tag would be boosted.
Conclusion
First Solar, Inc. (NASDAQ:FSLR) shares could see upside rewards due to the factors mentioned above. The company could also expand its presence beyond the United States as the demand for solar panels is solid throughout the globe. Currently, the company enjoys high quality growth and would continue to maintain it.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.