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First Solar (FSLR) Down 14% Since Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for First Solar, Inc. FSLR. Shares have lost about 14% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

First Solar Beats Q4 Earnings and Sales Estimates

First Solar reported fourth-quarter 2016 earnings of $1.24 a share, beating the Zacks Consensus Estimate of $0.97 by 27.8%. The reported number, however, declined 22.5% from the prior-year figure of $1.60.

For 2016, the company reported a loss of $3.48 per share. The Zacks Consensus Estimate for the year stood at earnings of $4.71. In the year-ago period, First Solar had reported earnings of $5.37 per share.

Revenues

First Solar’s revenues of $480.4 million in the quarter surpassed the Zacks Consensus Estimate of $392 million by 22.6%. Revenues also declined 49% from the year-ago figure of $942.3 million. The decline is primarily attributable to the completion of multiple systems projects during the quarter, partially offset by higher module-only sales.

Full-year revenues came in at $2.95 billion, beating the Zacks Consensus Estimate of $2.86 billion by 3.1%. However, reported revenues fell 17.5% from the year-ago figure of $3.6 billion.

Operational Highlights

Gross profit in the reported quarter was $63.6 million, down from $231.4 million a year ago.

Total operating expenses increased 732.2% to $829.0 million, due to higher selling, general and administrative expenses. Restructuring and asset impairment costs and production start-up costs largely contributed to the rise.

Operating loss during the quarter was $765.4 million as against the income of $131.8 million in the year-ago quarter.

Financial Performance

First Solar had $1,347.2 million of cash and cash equivalents as of Dec 31, 2016, up from $1,126.8 million at 2015 end.

Long-term debt was $160.4 million at the end of the fourth quarter, compared with $251.3 million as of Dec 31, 2015.

2017 Guidance

First Solar has increased its revenue guidance to the band of $2.8–$2.9 billion from $2.5–$2.6 billion projected earlier. However, it has lowered the gross margin guidance to the range of 11–13% (12.5–14.5% guided earlier). The company reiterated the operating income guidance in the range of $40–$80 million. Meanwhile, the company trimmed its operating cash flow guidance to reflect cash outflow of $250–$350 million band, compared to $550–$650 million predicted earlier.

The company reaffirmed its panel shipment projection to be in 2.4−2.6 gigawatts (“GW”) band.

Full-year earnings are still expected in a band of a break-even to $0.50 per share.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter compared to one upward. In the past month, the consensus estimate also shifted downward by 270.1% due to these changes.

First Solar, Inc. Price and Consensus

 

First Solar, Inc. Price and Consensus | First Solar, Inc. Quote

VGM Scores

At this time, First Solar's stock has an average Growth Score of 'C', however its Momentum is doing a bit better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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