The world’s largest manufacturer of solar power plants, First Solar Inc.’s (FSLR) shares surged 7.8% to $44.48 on Jun 25, 2013 buoyed by President Barack Obama’s proposal to reduce emissions from coal plants. The company’s share prices have oscillated between a 52-week high of $59.00 and a 52-week low of $13.81 and are now trading 222.1% above the low price.
President Barack Obama unveiled a fresh climate change strategy recently that will likely limit pollution from existing coal-fired power plants. He issued directives asking environmental regulators to set up carbon pollution standards for active plants. Coal generates about 40% of U.S. electricity and coal plants are the largest source of carbon emissions in the U.S.
Although this news came as a blow to coal-fired utility stocks, some renewable energy stocks like First Solar witnessed noticeable jumps. A major growth area in the renewable space is solar energy. With the increasing need to develop renewable energy in response to stringent environmental regulations, countries worldwide are relying on solar energy for generating electricity.
First Solar swung to a profit in the first quarter 2013 after incurring a loss in the year-ago period. The uptrend was driven by higher sales of solar modules. The largest U.S. solar manufacturer by shipments also registered an almost 52% upsurge in its top-line on a year-over-year basis. The improvement was mainly attributed to high third-party module sales volumes and an increase in revenues from systems projects.
Again, First Solar has a strong balance sheet in the solar industry with a debt-to-equity ratio of 13.3% (Zacks Industry average: 44.3%) and cash and cash equivalents of $842.8 million in the first quarter 2013. The strong liquidity position of the company gives it a distinct advantage over its cash-strapped peers.
First Solar is also seeking to expand internationally, particularly in Japan. In Apr 2013 the company announced its intention to acquire TetraSun from JX Nippon Oil & Energy Corporation for an undisclosed amount. We note that JX Nippon is the largest oil company in Japan. Post acquisition, both the parties intend to produce and market TetraSun products in Japan. The acquisition would be a strategic fit as Japan is expected to become the second-largest market for solar products in 2013 after China. The company is continuously receiving orders from domestic as well as international clients for solar modules and other allied services. In 2012, the company inked several deals with Chinese, Indian and Indonesian organizations.
Alternative energy sources are gradually making inroads into the global energy mix due to its clean burning nature and a growing awareness among the masses regarding its benefits. Growing population, economic growth, regulations as well as new technologies are transforming the energy landscape. The solar industry has been gradually recovering worldwide since 2011. This is mainly backed by increasing panel prices, a boost in solar power demand, accompanied with higher oil prices that is driving demand for alternatives.
Indeed, the recent proposal from President Obama may adversely affect coal-dependent utilities like Southern Co. (SO), American Electric Power Co. and Duke Energy Corp. (DUK). However, utility providers like Sempra Energy (SRE) and Duke Energy are increasingly adding alternative sources like solar, wind and water for the generation of electricity.
First Solar presently retains a short-term Zacks Rank #3 (Hold).
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