First Solar Beats Whisper, Sells Key Project
(First Solar 2011 guidance story updated for analyst commentary)
NEW YORK (
) --
First Solar
(FSLR) - Get Report
provided the 2011 guidance that the market was expecting on Tuesday after the market close, targeting full year 2011 earnings well above the existing Street consensus, and in a range of $8.75 to $9.50.
The bigger item, though, in terms of a catalyst for First Solar shares, may be that the company announced the sale of its 290 megawatt (MW) Agua Caliente project to
NRG Energy
after the close on Tuesday concurrent with the 2011 guidance.
Investors were disappointed that First Solar had not announced an Agua Caliente sale at the time of the third-quarter earnings, and the confirmation that First Solar has executed on the sale may help to rally shares.
The high-end range of $9.50 is above the whisper number making the rounds of the Street in the past few weeks: that First Solar's outlook would come in north of the $9 mark. The low-end, on the other hand, is barely above the Street consensus that analysts have expected First Solar to surpass.
With the whisper number for First Solar at the level of $9, anything short of that level may have upended any investors expectations of a catalyst from the Tuesday event. Yet given that First Solar shares are already near the $140 level where it has reached resistance throughout the year, a much larger rally on Wednesday morning on the high-end EPS target of $9.50 alone might not occur. It's the Agua Caliente sale combined with the high-end of the guidance that may allow First Solar shares to rally.
Barclays recently upped its full year 2011 outlook on First Solar to $8.80, above the existing Street consensus of $8.60.
First Solar shares were up between 3% and 4% in the after-market session on Tuesday to the $140 share mark, which has been a short-term ceiling for First Solar shares throughout 2010 trading. One analyst contacted after the First Solar guidance was released said he thought the 4% gain was relatively small given the EPS guidance and Agua Caliente sale, though the analyst thought it would be difficult for First Solar to rally as high as its annual high of $153.
First Solar is also targeting revenue higher than the Street consensus of $3.6 billion, stating in its formal guidance on Tuesday afternoon that net sales in 2011 will come in between $3.7 billion and $3.9 billion.
The key revenue breakdown is $900 million to $1 billion in systems sales and $2.8 billion to $2.9 billion in module sales. It's the systems sales that often prove to be a moving target due to project delays, and to be the stock catalyst too.
First Solar outperformed the earnings expectations provided during last year's annual outlook call. The U.S. solar company pegged a high-end for 2010 earnings of $6.85 last December. In its recent third quarter earnings, First Solar upped the full year earnings to a high-end of $7.65.
The U.S. solar bellwether also said it will spend as much as $1.1 billion on expansion in 2011.
Christine Hersey, analyst at Wedbush Securities, read the First Solar guidance as a mixed bag. The Wedbush analyst said that even with EPS targeted above the Street consensus and the Agua Caliente sale being reported, both events were expected, and almost requirements for First Solar.
Additionally, the lack of financial information on the price of the Agua Caliente sale could be a problem for some investors, though First Solar said on its guidance call that it won't be disclosing what it considers "competitive" pricing information. First Solar did say on the call that it expects to recognize revenue from the Agua Caliente sale in the second quarter 2011.
The Wedbush analyst noted that operating cash flow targeted for 2011 was exactly in line with planned First Solar spending of as much as $1.1 billion.
In addition, First Solar's 2011 RONA (return on net assets) guidance of 17% to 18% is below its 2010 RONA of 19%.
"I don't think this changes your mind either way if you were conviction long or conviction short," the analyst wrote in an email to
TheStreet
on Tuesday afternoon.
First Solar's high share price this year is $153. In the past five days, First Solar shares had gained close to 6%.
First Solar received a push late last week after the massive tax-cut package making its way into legislation included at the last minute the expiring cash grant for solar and wind projects.
>>Clean Energy Winners: Tax Cut Trades
Last year's annual outlook event didn't turn out to be a good indicator of the direction in First Solar shares.
First Solar shares slipped directly after the 2010 version of its outlook call, then rebounded by the end of December 2009 to the $140 level -- but proceeded to tank in early 2010 as fears about feed-in tariff cuts in Germany took the solar sector into a tailspin.
The solar sector now finds itself in the same exact position as it did then, with the debate ongoing about German political will and European demand slowing so much that the sector will be glutted with solar product.
First Solar also noted in its guidance event that it has 500 MW of unallocated modules for 2011. Analysts asked First Solar the key question about pricing in 2011 given expected feed-in tariff cuts and potential oversupply in 2011.
First Solar said that after its third quarter earnings there was a lot of speculation about First Solar aggressively lowering average sales price, but the company wanted to publicly state now that it has no near-term expectations of any type of price reduction.
"For the 500MW of unallocated modules, we've taken a more conservative stance as it relates to pricing. If we face a more dynamic pricing situation due to the supply/demand balance, we have 500MW slated for more aggressive pricing to react to that environment," First Solar's systems business chief Jens Meyerhoff said. The First Solar official said the solar company is confident of selling the 500MW in unallocated modules in 2011, but has its systems business as a captive sales back-stop for the 500MW.
Meyerhoff said the guidance of 400 MW in the systems business provides the room to move up to 500MW to 700MW. "We've found room outside of systems
for the additional modules, but leave room for upside in the systems business to deal with fluctuations in demand," the First Solar official said.
-- Written by Eric Rosenbaum from New York.
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