Tuesday, April 1, 2014

First Solar radiates confidence as stock price rises 20%

There's nothing that Americans love more than a comeback story. And so, on March 19, when First Solar (NASDAQ: FSLR) offered analysts auspicious full-year financial guidance—not just for 2014, but through 2017—U.S. investors were bullish on the news, driving the stock up 20.02% for the month, with a closing price of US$68.64 on March 28.

First Solar predicted net sales of US$3.7 billion to US$4.0 billion for 2014 and consolidated operating income of between US$270 million and US$320 million – the highest profits in nearly three years.

Meanwhile, results for SolarCity (NASDAQ: SCTY) and SunPower (NASDAQ:SPWR) wobbled slightly during March. “As solar stocks go, First Solar was the mover and shaker, for sure,” Pavel Molchanov, research analyst at Raymond James & Associates in Houston, told pv magazine.

“Now comes the hard part,” Molchanov said. "They have to deliver on what they have promised.”

Ambitious plans
Following a period during which its brand and business plan barely stayed in contention in the competitive solar sector, America’s top thin film module manufacturer is now determined to: shift its market focus; sharpen its module efficiency; step up its manufacturing capacity, and supplement its product line with polysilicon panels.

The Tempe, Arizona-based company revealed plans to vigorously ramp up its residential installation business as a hedge against a shrinking U.S. utility scale project pipeline. Although large-scale projects nationwide generated 65% of First Solar’s sales last year, that market is fading fast now that power companies are coming into compliance with their states’ renewable portfolio standards.

According to First Solar CEO Jim Hughes, tapping into the consumer market for solar could increase company sales by as much as 36%. He told Bloomberg: “Quite possibly, it will be our biggest growth segment, but we’re starting from a small base.”

A key enabler of this venture into the residential sector was the acquisition by First Solar last April of San Jose, California-based crystalline PV manufacturer Tetrasun, a rooftop startup. TetraSun's solar panels are specifically suited for small rooftop systems, as opposed to First Solar's thin-film panels.

In addition, the company plans to expand further into emerging global utility markets, including the Middle East—with a 52 megawatt (MW) project in Jordan added to its EPC pipeline just this past month—and an eye toward opportunities in Saudi Arabia, India, and South America. Indeed, management said that First Solar currently is competing for a cumulative 45 MW of commercial and industrial thin-film opportunities worldwide.

Production numbers
On the production end, the company proposes to boost its thin-film module efficiency and its manufacturing capacity over the course of the next three years, while reducing production costs.

First Solar told analysts that, in recent research and development efforts, the company had attained a record 17% efficiency for its cadmium telluride (CdTe) thin-film panels, with plans to move the technology into factories over the next three years. Starting at a current average conversion factor of 13.4%, the company proposes to improve efficiency as much as 15.8% by 4Q 2015, up to 18.4% in 2016, and to a maximum of 19.6% in 2017.

Combining these new efficiencies with a transformative manufacturing process developed in partnership with General Electric, First Solar now expects that its total system cost will decline to below US$1 by 2017—representing at least a 36% reduction from the 2013 level of US$1.60.

Still, the question remains: Will that level of efficiency be high enough—and that level of system cost low enough—to beat crystalline PV on the U.S. and world markets? Pavel Molchanov of Raymond James is not so sure. He maintains his “market perform” rating on the First Solar Stock, and in a recent research note, he advised, “It is fair to point out that First Solar has (1) a better balance sheet than most of its major peers and (2) a backlog of legacy projects providing reasonable visibility; [however,] there are also plenty of risks for longer-term profitability, including the unclear evolution of thin film’s economics versus crystalline PV. In particular, we look at the 2015 guidance as quite aggressive.”

For 2015, the company forecast net sales from US$3.8 billion to US$4.3 billion; and for 2016, between US$3.8 billion and US$4.5 billion.

Angelo Zino, research analyst at S&P Capital IQ in New York City, is more sanguine. He told pv magazine: “I’d definitely say that First Solar is the highlight for the month. The biggest positive takeaways from the March 19 analyst day were that their system cost-per-Watt would be under US$1.00 by 2017; and that their system efficiency would be up to 19.6% by 2017. These are very aggressive targets, but in the past they’ve set high objectives and have been able to meet them. And with Tetrasun in their back pocket, they now have a big opportunity for rooftops in Japan—which is a shrewd move if things go south for thin film.”

Customer clout
Meanwhile in California, San Mateo-based SolarCity, a leader in both system financing and installation, announced in March that it had signed its 100,000th customer and said it expected to surpass 100 MW in residential bookings during the current quarter—putting the company on a clear path to achieve its target range of 475 MW to 525 MW deployed in 2014.

However, the stock was down about 30% for the month—closing at US$61.38 on March 28, as opposed to US$84.96 on February 28—in a “correction” that Pavel Molchanov of Raymond James said could prove to be “enticing” to investors. The analyst upgraded SolarCity shares to “outperform” from “market perform” at month end, citing both the lower share price and new solar asset securitization efforts (which are expected to materialize in April).

During March, SolarCity also announced a major new outlet for its services: Following a successful trial run at two Best Buy electronics stores in California and New York last year, SolarCity will roll out its installation and leasing services at 60 stores nationwide in the U.S. The installer already has a similar arrangement with Home Depot, as well as a string of marketing partnerships with the likes of Apple, Microsoft and Samsung.

What's more, late in the month, the company officially announced a financing deal with Bank of America that is expected to fund more than 200 MW of solar projects. According to the press statement, “This financing is the largest aggregation facility for distributed generation solar projects to date, and the third such facility entered into by SolarCity. SolarCity has raised funds sufficient to finance more than $4 billion in solar projects.”

And in a callout to supporters of distributed generation, SolarCity ended the month in a headline-grabbing standoff with California’s public utilities. The company flaunted its industry clout when it halted the process of installing and connecting solar systems that include batteries allowing power storage, drawing attention to the fact that West Coast power companies have been reluctant to link the systems to the grid.

According to SolarCity, it has been more than a year since the utilities started refusing to provide grid connections for systems with power backup—and SolarCity already has about 500 interested customers on its waiting list.

“We’ve stopped submitting applications because we’ve lost faith that these things are actually going to be carried out in any reasonable time,” Will Craven, a company spokesperson, told Bloomberg.

If the rooftop giant succeeds in driving distributed generation on a faster schedule, SolarCity will truly have taken “the high ground” in American solar.

A strong number two
Our final up-and-comer for the month is SunPower. Second only to First Solar in the upstream U.S. industry, SunPower has also succeeded — with the help of the French multinational oil and gas company, Total SA , which owns 60% of the company—in penetrating emerging markets worldwide with its downstream EPC services.

SunPower created a buzz on the U.S. equity markets this month when it made a major move in China’s utility scale sector. On March 25, the company announced that it had begun operations in China for the first time via a joint venture that will use more than 70 MW of the company’s “concentrated solar PV packages” and its C7 Tracker technology. SunPower is teaming with Tianjin Zhonghuan Semiconductor, as well as with regional independent power grid company Inner Mongolia Power and state-owned Hohhot Jinqiao City Development Company in China’s Inner Mongolia region on two projects scheduled for completion in 2015. The deal, which was originally cut in December 2012, got final approval last November.

"Today's announcement is a first step in our aggressive efforts to break into the Chinese market," Tom Werner, SunPower president and CEO, commented at a press event. "Working together with our strong local partners, we believe that we can deploy significant volumes of our SunPower C7 Tracker power plants to help serve China's growing need for clean power."

SunPower stock was slightly deflated on March 28—down 3.43% at US$31.85. But on March 31, the share price had taken a turn for the better, rising 1% in afternoon trading—and remaining on the Citi Focus List for the United States at a “buy” rating.

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