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Morningstar | Earnings and Outlook Show First Solar Is Still Racing To Keep Up With Demand

We are reaffirming our $57 per share fair value estimate for First Solar after the company reported earning $1.36 per share for the full year 2018, up from a loss in 2017. We also are reaffirming our no-moat and stable moat trend ratings.

Despite the positive year-over-year performance, earnings came in below our estimate and below management's 2018 guidance range. We think the underperformance relates to revenue timing and management's decision to pull forward costs, not anything fundamentally wrong. We are reaffirming our 2019-beyond forecasts. Management reaffirmed its $3.25 billion-$3.45 billion sales guidance and $2.25-$2.75 earnings per share guidance, both in line with our outlook.

First Solar's most pressing concern is finding enough production capacity to meet rampant demand, especially in the U.S. Management reported 12.1 gigawatts of bookings as of late February with orders that extend out to 2023. It effectively has sold out all of its current 5.6 GW of Series 6 production capacity for the next two years.

First Solar's bookings support our 9% average annual sales growth through 2022 but could put pressure on the cost side. We expect factory ramp-up costs to remain a slight drag on earnings as the company brings on its new Vietnam line this year and adds second Series 6 lines at its Ohio and Malaysia plants in 2019-20. Without those expansions and conversions, First Solar will have difficulty maintaining its sales pipeline and growth.

First Solar's long-term challenge is maintaining sales and margins while maximizing its production. Management is estimating 7.3 GW of contract opportunities beyond its current bookings and we believe there is sufficient demand among U.S. utilities to support continued growth. However, we expect more competition as costs across the industry come down and tax benefits sunset.