EUR 850.00 For Business Accounts Only

Morningstar | First Solar's Drop in Sales Not Indicative of Systemic Problems; Reaffirming Outlook

We are reaffirming our $57 per share fair value estimate for First Solar after the company reported first-half earnings that are on track to meet our expectations despite a slight drop in gross margin. We are reaffirming our no-moat and stable moat trend ratings.

First Solar reported $309 million of net sales in the quarter, a 50% drop from the same quarter last year, a 45% drop from the first quarter of this year, and 39% below consensus for the quarter. Although this is a notable drop that fell all the way to the bottom line, the impact appears to be due to contract timing. Management reaffirmed its full-year guidance in line with our estimates for $2.6 billion net sales and $150 million operating income.

FirstSolar's Series 6 production ramp-up also resulted in slightly higher cost-per-watt in the quarter, as we expected. We think margins will expand in the second half when Series 6 production is operating at full capacity. Management said they expect all three global Series 6 production lines to be delivering shipments by the fourth quarter. This will be key to making up for the second-quarter dip in revenue and margin.

A successful ramp-up of Series 6 production will be key to hitting our $4.5 billion net sales estimate in 2019. We assume production levels hit normalized run rates by 2020, including the second Ohio facility, so minor delays would not have a significant impact on our fair value estimate.

Year-to-date sales bookings hit 4.1 gigawatts through late July, and management reports 10.9 GW of total bookings, equivalent to about three years of full production at full capacity, including the new Ohio facility set to come on line in late 2019. This is up from bookings that totaled an equivalent two years of full production excluding the new Ohio facility at year-end 2017.