Inc.: 1990 Revenue: $3.2B Market Cap: $4.3B
Competitors: CSIQ, TSL, YGE, JASO, JKS, SPWR
With respect to historical performance and future market expectations, First Solar is currently the highest rated business in the solar PV industry. The company is also currently available at a reasonable price, which becomes much more attractive when considering the questions and concerns associated with virtually all competitors. The few cautions outlined below are more than balanced by the company’s strengths, and should be tolerable for investors comfortable owning businesses operating in the high-growth solar power sector.
Business & Revenue (8/10)
First Solar Inc. is a veteran vertically integrated solar PV module (thin film & recently crystalline) manufacturer and fully integrated utility-scale turn-key PV system developer. FSLR refers to these groups as their ‘Components’ and ‘Systems’ segments respectively. FSLR is heavily dependent on the United States market with +85% of their sales being generated in the U.S. while other Americas (inc. Canada 8%), Europe (5%), Middle East, Africa, and Asia-Pacific account for the balance. The 10-year historical Revenue chart below outlines steady industry-leading sales growth but does show a relative taper recently compared to most.
Competitive Advantage (7/10)
FSLR’s Components segment is subject to the commodity-style market conditions of solar PV module manufacturing, while the Systems segment is heavily dependent on the current 30% U.S. federal Investment Tax Credit (ITC) which expires on Dec.31 2016. Much like Canadian Solar, FSLR has reduced its exposure to the module market by providing turn-key project development (including financing and 3rd party module sales), which accounted for a sizable 77% of net sales in 2013 (most recent annual reporting). Diversification in this market has been further enhanced with the new addition of a crystalline line of modules for space-constrained applications. Protection from the ITC, however, is not as easily managed as this government policy significantly effects U.S solar development. However, investors should be comforted in knowing that despite this, the latest EY Renewable Energy Country Attractiveness Index (RECAI) puts the U.S. in the No. 2 spot for Solar PV. Moreover, in the event that the ITC were not to be extended, it falls from 30% to 10% as opposed to being completely abolished.
Leadership & Mgmt Effectiveness (6/10)
The obvious uncertainty associated with FSLR’s Executive Management Team is that the members have only been with the company for an avg. of 3 years, and none of them more than 4. This is balanced, however, with a very senior depth of previous experience weighted to the financial and energy sectors. Further confidence can be gained from the Board who has been with the company much longer on avg. The Directors are lead by Chairman Michael J. Ahearn who has held various FSLR roles since 2000 including CEO from 2000 to 2009. Although improvements can be made (and should be monitored by investors), the FSLR team has managed to keep the business out of trouble much more effectively than the competition. The chart below shows that, although currently lower than industry benchmarks, ROE is more stable and higher on avg. than the competition.
Earnings & Value (8/10)
FSLR’s earnings have been slightly more volatile, but much more impressive than its competitors who routinely slip into negative territory. The chart below shows wealth creation during times when the industry is struggling, and ahead of time when it isn’t.
The chart below clearly outlines how FSLR has left the industry behind in terms of steadily growing company value. It also illustrates the serious trouble competitors have had adding value over the past 4 years.
Financing & Liquidity (9/10)
In an industry plagued with unstable liquidity, FSLR has managed its financing extremely well, although debt repayment could be increased in the near future and should be monitored (via Cash from Financing) by investors. The chart below shows the very low and stable Debt to Equity ratio compared to the competition who are often above 1.
Current Price (8/10)
PE (FWD) & PE are currently sitting between 15-16 which is the highest in the industry that has an avg. PE of 12, but still reasonable considering the difference in risk and performance between FSLR and the competition. The current Price to Book Value of .9 is low for a well-managed business and even lower yet when compared to the industry avg. of 1.8. Potential investors should be happy to know that these values have been reduced recently due to the widespread misconception that lower oil prices will significantly effect solar power industry earnings.
-Adam Halsey, data provided by YCharts Inc.