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First Solar Guides for 2019, Highlights Series 6 Module Growth

First Solar, Inc. FSLR recently issued its 2019 financial guidance that reflects a significant improvement over its current-year’s expected achievements. Also, the view offered a detailed note about the success of its latest product — Series 6 photovoltaic (PV) module — launched last year.

2019 Outlook

First Solar expects to generate revenues of $3.25-$3.45 billion in 2019 with solar power systems net sales constituting 55-60% of the total net sales, while the rest will be realized from third-party module sales. Notably, this guidance when compared with the top-line range of $2.3-$2.4 billion expected for 2018 reflects a solid annual improvement of 41.3-43.8%. Moreover, $3.35 billion — the mid-value of the guidance range — came ahead of the Zacks Consensus Estimate of $2.95 billion for 2019.

On the bottom-line front, the company projects GAAP earnings per share (EPS) in the range of $2.25-$2.75. This includes production ramp costs of approximately $20-$30 million and production start-up expenses of $90-$100 million associated with the deployment of Series 6 capacity in 2019. This bottom-line guidance also exceeded the company’s 2018 expected EPS range of $1.40-$1.60 by 30.7-40.6%. However, $2.50 — the mid-value of the earnings guidance range — fell short of the Zacks Consensus Estimate of $2.89 for the next year.

Coming to First Solar’s cash-generating expectations, the company expects its operating cash flow to be breakeven and net cash balance in the range of $1.6-$1.8 billion at 2019-end.  While the operating cash flow figure is favorable when compared to the cash outflow of $100 million anticipated in 2018, the net cash balance figure reflects year-over-year decline.

Factors Influencing 2019 View

In the context of First Solar’s aforementioned guidance, it is imperative to mention that a solid production ramp-up in its Series 6 modules will be a prime contributor to management’s anticipated improvements for 2019.  

Year to date, the company has started up three Series 6 factories. Going ahead, its second Vietnam factory is scheduled to start production in the middle of the first quarter of 2019, with management aiming to put up six Series 6 factories over 2019-2020 period. Surely, production from these factories is likely to boost the company’s revenues and, in turn, earnings.

Also, the company expects to generate strong system sales of over 1 gigawatt, including approximately 900 megawatts of development project sales. In 2019, its module sales are expected to grow significantly to approximately 4 gigawatts.  These should contribute to First Solar’s improved expected results next year.

To this end, management expects 2019 total module production in the range of 5.2-5.5 gigawatts (GW), which includes approximately 2 GW of Series 4 production. For Series 6 capacity expansion next year, First Solar plans to spend $600 million, which will boost this production.

Also, the company expects to invest $325-$375 million in Safe Harbor inventory during 2019, which in turn will hurt its full-year operating cash flow.

Our View

Demand for alternative energy sources has been on the rise due to an increase in carbon emissions. In particular, solar energy has gained the maximum popularity due to its easy and cheap availability as well as declining price of solar panels. Notably, the United States is a pioneer in the solar industry despite Trump having walked out of the Paris agreement.

Evidently, according to the latest short-term energy outlook by the U.S. Energy Information Administration (EIA), the nation’s solar power consumption is projected to rise 12.6% year over year in 2019. 

Being a steady performer, First Solar is gaining further momentum with the increasing demand for solar energy in the United States and across the globe. The increased production expectation for its Series 6 modules is an evidence to that.

Currently, other solar majors like SolarEdge Technologies SEDG, Canadian Solar, Inc. CSIQ and SunPower Corporation SPWR are also making significant efforts to reap the benefits of the expanding solar market.

Price Performance

In a year’s time, First Solar stock has lost 38% compared with its industry’s 16.7% decline.

Zacks Rank

First Solar currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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