Scheduled to report quarterly earnings on Tuesday, February 21, First Solar (FSLR) is fighting a downward trending stock price on the markets. The stock is cheap: it trades at 0.61 times book and has a P/E of just 7 times. First Solar’s problem is that the company forecasts a massive drop in profits this year and possibly next year. Its transformation is anything but certain.
In 2016, the U.S. had a banner year as measured by solar PV (photo voltaic) installations. 14,625 megawatts in installations were driven by non-residential installations. Unfortunately, FSLR’s stock drop forecasts trouble ahead.
Supply glut
Chinese oversupply hurt the price of solar panels. Unless world demand matches the output from China, PV prices will suffer. First Solar is preempting the drop in profit margin by shifting from low-priced product to higher-priced ones. This will lead to higher costs and lower revenue in the fiscal year. On Jan 24, JMP Securities downgraded the stock and set a $28 price target.
When FSLR reports results, listen carefully to management’s views on the supply and demand dynamics, profitability, and progress of the restructuring. This will clarify expectations for profit margins.
