North Coast Solar Stocks

February 13, 2008

First Solar Q4 Shines, Pumping New Energy To Ailing Green Sector

Filed under: AMAT, FSLR — Tags: , , , , , — Jason @ 6:54 pm

Wednesday February 13, 6:54 pm ET
Brian Womack

Beaten-down solar stocks got back some of their mojo Wednesday after market-leader First Solar crushed fourth-quarter estimates and raised its 2008 outlook.

First Solar (FSLR) — the largest solar company by market capitalization — saw its stock rise 30% to 228.46 Wednesday, regaining much of its loss since the start of the year.

The solar-module maker said fourth-quarter earnings soared more than 500% from the year-ago period to 77 cents per share. That smashed the average estimate of 53 cents among analysts polled by Thomson Financial.

Sales nearly quadrupled to $200.8 million, topping views of $179.6 million.

“Pick your favorite hokey phrase,” said Paul Leming, an analyst with Soleil Securities who rates the stock a neutral, or hold. “They buried the estimates. They blew the lights out. That was a spectacular quarter.”

For 2008, the company raised its sales outlook to $900 million-$950 million; it previously had forecast sales of $760 million-$800 million. The new outlook also topped analysts’ average forecast of $820.5 million.

“It’s clearly good news for the industry,” said Jonathan Hoopes, a ThinkEquity Partners analyst who rates First Solar a buy. “Investors should come back into these stocks as they see strong earnings in the fourth quarter (and the) first quarter and second quarter.”

IBD’s Energy-Other group, which is dominated by solar stocks, rose more than 8% on Wednesday. SunPower (SPWR) saw shares climb more than 12%. The solar-module maker announced solid earnings in January, but not enough to drive the response First Solar caused.

Solar stocks fell roughly 25% in the first six weeks of this year, a big reversal from 2007, when they soared roughly 70% on higher oil prices, government incentives and “green” technology buzz.

Blame the declines this year on the overall contraction in the stock market, but also fresh fears about oversupply as more companies ramp up to get their piece of the solar market. That could hurt sales — and profit margins.

Some worry that government incentives for solar build-outs may not be enough to overcome a potential oversupply.

John Hardy, an analyst at American Technology Research, calls those oversupply fears overblown.

Some new industry players may be optimistic about ramping up quickly, he says. But large-scale manufacturing of quality solar products is easier said than done.

Soleil’s Leming adds that Germany — which makes up roughly half of the world’s solar market — has no real caps on solar subsidies. He expects that to continue for a few years before Germans begin to balk at the cost.

“We got a good, comforting report out of First Solar this morning that I just think allayed a lot of investor concerns,” Leming said.

First Solar gave investors good news by reporting yet another increase in its manufacturing efficiencies. Using its proprietary system, the company increased its production output — a metric that includes the amount of power its solar modules can produce — by more than 10% in the fourth quarter. That came on the heels of even larger improvements in the second and third quarters.

That’s helping First Solar churn out solar modules faster. The company is also building new production lines, fueling potential sales.

ThinkEquity’s Hoopes says First Solar isn’t taking a hit on prices, so those extra sales fall to the bottom line.

“There’s a real nice toggle switch,” he said. “That’s where they were able to deliver.”

Another help: First Solar uses a thin-film process that avoids the need for polysilicon, which is in short supply.

First Solar’s results also helped boost Applied Materials (NasdaqGS:AMAT – News), a key provider of gear used in thin-film manufacturing. The firm reported estimates-beating numbers for its first quarter Tuesday evening, sending the stock up 9% on Wednesday.

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