Tighten your ‘hold’ on First Solar

Off late, First Solar (FSLR) has been trading in red, but the stock has seen a staggering 153% growth in the past 52 weeks. The recent weakness was primarily driven by import restrictions on solar panels due to President Donald Trump’s new tariff law, as well as intensified competition between key players. So how will the stock behave in the coming years? Let’s see.

In the most recent earnings, First Solar posted a narrower-than-expected loss per share hurt by expenses related to restructuring, asset impairments, and goodwill impairments. On a sequential basis, earnings were dragged by higher operating as well as tax expenses.

However, this did not stop the company from raising its full-year 2018 guidance on hopes of the expected sale of 8point3 Energy Partners; besides higher Series 4 output. Shipments are also expected to grow this year.

The company had more cash and marketable securities at the end of the fourth quarter, thanks to the cash received from projects sold in the prior quarter and third-party module sales. Looking ahead, the outlook for net cash balance has been revised upwards for fiscal 2018, while the forecast for operating cash flow remains unchanged.

First Solar was unable to retain capital and the company has not issued a dividend to date.

Meanwhile, the company’s long-term debt had more-than-doubled from last year, despite a decline in the current portion of the debt. In contrast, accumulated earnings had declined, denoting that First Solar was unable to retain capital and the company has not issued a dividend to date.

During this period, First Solar was able to pay its creditors a tranche of the money owed, as can be seen from the 19.2% drop in accounts payable. The company faced a shortfall in receiving payments in advance for the services yet to be performed, leading to a 73.5% plunge in deferred revenue in the fourth quarter.

First Solar has the ability to pay back its liabilities with its assets with a current ratio of 5.89 and has been aggressively financing its growth with debt, which can be seen from debt/equity ratio of 9.37.

Analysts’ recommendations

Eleven out of the 19 analysts covering the stock recommend a Hold rating, while eight recommend a Buy or Strong Buy.

When looking at the growth estimates, analysts are expecting a 108% plunge in the current quarter and 34.70% dip in the current year. However, fortune may shine bright next year for the company with a 94.7% growth.

In the longer term, due to tight competition from Tesla (TSLA) and Microsoft (MSFT) the street expects to see 0.20% decline in five years. Trump’s restriction on solar panel imports also adds to its woes.

Most of the sell-side analyst firms are sticking to a Hold rating, while institutional investors are on different grounds. Trillium Asset Management had lowered its holding of First Solar stock by 4.67%, while Flinton Capital Management has lifted its holding by 18.7%. Wells Fargo lowered its stake by 8.3% in the fourth quarter, while Hanseatic Management Services raised its stake by 52.9%.

The stock, which has traded between $25.56 and $76.61 in the past 52 weeks, was down 3.68% in the past five days. First Solar’s 52-week growth of 152.86% eclipsed Nasdaq ‘s 19.30% and S&P 500’s 10.77% growths respectively.

Most of the sell-side analyst firms are sticking to a Hold rating, while institutional investors are on different grounds.

Among its rivals, only SolarEdge Technologies (SEDG) outperformed First Solar with 260.78% yearly growth. This was followed by Sunrun (RUN) with 72.44% growth, Canadian Solar (CSIQ) with 42.44%, SunPower (SPWR) with 28.97% and ReneSola (SOL) with 9.21% increase.

First Solar will be able to outperform only if the import restrictions are relaxed and demand for renewable energy sources keeps increasing. In addition, market analysts are expecting optimism in the stock as First Solar sees S6 modules to drive 2019 average selling prices above 2018 levels.

So we would suggest that you tighten the hold.