How hot is too hot? First Solar's star status gets another boost

Times staff writer Edward Silver, who keeps a close eye on green investing trends, filed this report on solar-module maker First Solar Inc.'s earnings report today:

First Solar thinks different, and that’s why its stock is in a class by itself in the renewable-energy field. Though it’s a young company in an emerging industry, it has become a profit machine, a status burnished by its first-quarter results.

Today it reported earnings of 57 cents a share, outdoing consensus estimates by a dime. Revenue of $196.9 million was triple the year-earlier sum. Taking the new numbers into account, analyst John Hardy of American Technology Research believes First Solar is likely to earn $2.82 a share this year.

With the stock around $300 -- it closed at $291.99 but spiked to $307.80 in early trading -- that still implies a rich price-to-earnings ratio. But the equation loses its outlandish tinge when you consider that First Solar is building plants fast to satisfy demand that may swell next year’s profit up to $7 a share.

First Solar is living large on "thin film," a next-generation method that accounts for perhaps 10% of the industry’s installations. Silicon-based cells claim the rest. Thin-film products are flexible, lighter and above all, dodge the inflated price of silicon, which has been on a tear. But the standard material converts sunlight into energy more efficiently, and the intricacies of thin-film chemistry and manufacturing have been known to hamper companies trying to get off the ground.

Even within the thin-film brigade, however, First Solar goes it alone. Its formula relies on tellurium, one of the rarest elements on the planet. Long-term supply is secure, the firm says, and all else seems to be going right too. Its much-admired manufacturing is said to be so cost-effective that some see it leading the charge to bring solar into coal’s price range. That’s a goal dear to the hearts of both environmentalists and investors.

Enough background? Here’s what’s new. The company is headquartered in Phoenix but its business is anchored in Europe. On today’s conference call with analysts, however, CEO Michael Ahearn spoke of a high sense of urgency among U.S. utilities to meet their renewable-energy mandates. Already, First Solar is developing a 7.5-megawatt pilot project with Southern California Edison. Look homeward, Ahearn?

Hardy, the analyst, calls First Solar the most capable provider for utility-scale projects. Starting in the latter half of 2009, "We see the U.S. utility market as the primary driver of demand, based on the fact, of course, that the U.S. consumes so much of the world’s electricity."

The question is, are the blue skies already priced into the company's $23-billion valuation? First Solar investors know they own a volatile stock, one that has almost doubled from its February depths of $165.60. Wall Street pays well for speedy growth, but at these heights the risks are magnified.

A few to keep in mind: What if silicon prices slide as supply rises, and potential thin-film customers begin to think different about their choice? What if First Solar’s suppliers can’t mine enough tellurium to feed its expanding appetite? And as it becomes known as a stock that must be owned, will there soon be anyone who doesn’t?

Posted April 30, 2008

Comments

[SolarGuy]

First Solar shows that even as the U.S. faces recession, the solar industry is heating up. 175 of the world's leading experts on solar & energy efficiency will be in San Diego May 3-8 for the national solar conference: SOLAR 2008 to highlight where the industry is headed. There are public events all weekend: www.solar2008.org

[sheila]

If utilities really wanted to meet their RPS, they would enter into long-term contracts with individuals to buy 100% of power generated on our properties, and would have that counted towards their RPS.

at this time, they refuse to buy power from us (net metering is a joke, where they get all excess for free), we are NOT ALLOWED to oversize our systems under the Million Solar Roofs program, low-cost capital is available to utilities (on our tax dollar) but not to us, and 100% of power generated by individuals at NO cost to the utilities is calculated as a LOSS on the balance sheet of utilities (as are all conservation measures undertaken by us).

so, utilities win by getting all the subsidies, tax breaks, buyback guarantees, low-cost capital and free excess power WE PAY FOR, they get to completely kill off our taxpayer-owned wilderness for "remote solar and wind" and steal our homes by eminent domain for their wasteful, unnecessary gigantic power lines, while we are hijacked by ever-higher prices and NONE OF THE UPSIDE.

don't believe the hype. CA's government and utilities could have made simple policy changes that would have incredibly benefited ratepayers/taxpayers, met all RPS requirements AND totally cleaned up the planet, but their greed is in the way. make a few calls today and get them to change!

[JJ2000426]

To understand First Solar's business and tellurium you MUST read this and other articles on tellurium:

http://seekingalpha.com/article/71942-the-tellurium-supernova-has-erupted

http://seekingalpha.com/author/mark-anthony