Since reporting earnings in February, First Solar (FSLR) shares rebounded sharply in April after updating its guidance for the next few years. The shift in sentiment caught short sellers off-guard: at last check, short float was 30%.
Fourth Quarter Earnings
Gross margins declined 110 basis points from the previous quarter to 27.3%. The company guided gross margins to decline in the current quarter, down to between 25% - 27%. Even though operating expenditures declined 8% from the previous quarter to $121.5 million, the company said that the market will remain turbulent for some time to come.
Investors in February interpreted the negative tone as a reason to sell shares from $35 to as low as $25 by the beginning of March 2013.
Analysts lighten up in March
Analysts began to lighten up last month. Raymond James upgraded First Solar, Trina Solar (TSL) and SunPower (SPWR) to a "market perform" rating. DNB Markets also upgraded First Solar to a "hold" rating, setting a price target of $27.
Investors grew more confident on solvent solar energy players like First Solar, after Suntech filed for bankruptcy. Although a reader astutely noted that oversupply will remain an issue despite the bankruptcy, the Suntech filing still brings hope for balance in the industry. Weaker players will be shaken from the industry, which will benefit the healthier companies like First Solar.
First Solar Guidance Positive
On April 9, 2013, First Solar said on its analyst day meeting that the company will earn $4.00 to $4.50 per share in 2013 on revenue of between $3.8 billion - $4 billion. The figures were far higher than consensus estimates. Analysts forecast revenue to be as low as $3.2 billion.
A key figure provided by the company was the manufacturing efficiency increase. First Solar believes it will cost $0.40 per watt by 2017, sharply lower than the $0.63 - $0.66 forecast for 2013. This metric is important: only the lowest cost producer in the industry is expected to thrive in the solar energy marketplace.
For the month, First Solar is up 38%, slightly down from a 48% intra-day peak when the guidance was announced.
Charting and Conclusion
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First Solar remains a clear favorite in the solar energy space. Investors may take profits in shares of the company in the near term. Investors who missed the rally will be given another entry point some time in the future:
Written by Kapitall contributor Chris Lau
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The following infographic produced by Kapitall highlights the current state and potential of the industry. Click to expand the image and learn how to invest in solar or other industries at Kapitall (www.kapitall.com).