The article was written by Jacob Saphir, a Financial Analyst at I Know First.

First Solar Stock Prediction

“When wireless cellphones first came out, analysts predicted that at peak, it would only replace 5% of landlines. They said the quality wasn’t good enough. Clearly that was improved. I think you’ll find a similar thing in solar.” Lynn Jurich

Summary:

• First Solar continues to thrive in an oversupplied industry.
• Growth is attributed to increase in revenue earned, government incentive and favorable regulation, gaining market share, and positive correlation to oil price.
• First Solar Restructuring plan will transition the company to operate more efficiently.
• I Know First’s algorithm indicates a bullish signal.

Background:

First Solar (NASDAQ: FSLR) is among the world’s largest photovoltaic solar panel designer, manufacturer, and seller of solar modules.  In addition to manufacturing and selling solar modules, the company also provides operations and maintenance services.  Founded in the year 1999, the company is headquartered in Tempe, Arizona.  As the world turns to alternative energy, solar energy is a viable renewable energy.  The solar panels convert sunlight into electricity.  According to the U.S. Department of Energy Office of Basic Energy Science’s, the “sunlight has the highest theoretical potential of the earth’s renewable energy sources.”  This appeal has resulted in many to compete in an industry that is oversupplying demand.  Despite the industry’s dim view, the company is given a bullish forecast due to the company’s potential in growth and corporate restructure.

Growth

The company’s growth are found in consistent increases in revenue, government incentives and favorable regulation, positive correlation with oil price, and gain in market share.

Financial

Since the year 2013, First Solar has been consistently reporting an increase in revenue to $3.58 billion as of the year 2015.  As revenue increased, so did net income.  Net income rose from $350.72 million in 2013 to $546.42 million in 2015.  Resulting in approx. a 56% increase.  Moreover, operating margin increased from 11.19% to 14.44%.  This calculates to an increase of approx. 29%.  These favorable reporting is an indication of the company’s improvement in its financial standings.   Such positive reporting will leave investors eager to await the company’s third quarter earnings scheduled in November 14, 2016.

Government Incentive and Regulation

As with any introduction to technology, high initial cost could deter customers towards conventional energy source use.  First Solar benefits from generous government incentives.  In the United States, customers whom switch to solar energy installation are offered a 30% tax credit for residential and business installation.  Despite many viewing the tax break to be limited in the future, Congress just passed a three year extension on December 2015 to continue the program. In addition to offering incentives, governments requiring buildings to have solar panels installed could benefit the company.  One of the earliest countries to utilize solar panels widespread was Israel.  Unlike its oil rich neighboring countries, the country resorted to harnessing solar energy.  The technology has been successful, that over 90% of homes have solar panels.  Looking to Israel’s success, others are looking to implement it.  Recently, the city of San Francisco will requiring all new building ten stories or below to have solar panels installed starting on January 2017. Such encouragement from the government could potentially benefit the company increase in market share.

Gaining Market Share in an Oversupplied Market

Given the ability to harness sunlight into electricity and the abundance sunlight, more companies entered the market.  Consequently, the number of companies rose to a point of oversupplying the market.  Since 2012, over sixty companies have filed for bankruptcy.  The most profile case is SunEdison, once the largest and fastest growing renewable energy company.  SunEdison declared chapter 11 bankruptcy on April 21, 2016. As evident in First Solar’s increase in revenue, the company has been increasing in market share as competition has been decreasing.

Positive Correlation to Price of Oil

The stock positively correlates with the price of oil.  As the price of oil increases, so does First Solar’s stock.  If conventional means of energy use increases in price, more people will encouraged to seek alternative energy.  As a result of oil prices increasing in the past month by at least 10%, FSLR increased over 20% since September 21, 2016. As the technology improves and becomes more widespread, the cost of operation will decrease.  According the International Renewable Energy Agency, the amount “of electricity generated using solar panels stands to expand as much as six fold by 2030 as the cost of production falls below competing natural gas and coal-fired plants.”

First Solar Restructure

Since July 2016, the company is restructuring itself to become more profitable.  By discontinuing its TetraSun experiment and looking to sell its external O&M business unit, Skytron Energy, the company will operate leaner and more efficiently.  Compared to First Solar, TetraSun used high efficiency silicon on its panels compared to First Solar’s own cadmium-telluride material.  First Solar acquired TetraSun, as a hedge if high efficient silicon material would be a more efficient material to incorporate than cadmium-tellurium material.  However, as time passed by the company improved the use cadmium telluride material.  This resulted in the company to refocus its attention and resources towards its longstanding use and discontinue its TetraSun experiment.  Along with Tetra Sun, First Solar is looking to offload Skytron Energy.   The company acquired Skytron Energy to increase its market share in Europe.  However, CEO Mark Widmar indicates that due to competition in Europe for O&M contracts, “combined with the progression of First Solar’s internal O&M capability, particularly as it relates to smaller scale solar plants, has changed how skytron fits into our strategy going forward.”

Conclusion:

We are maintaining a bullish forecast of the stock.  I Know First’s algorithm forecast the stock as a long term investment.

Past I Know First Forecast Successes With FSLR:

In such as the one dated on December 24, 2014, the algorithm accurately forecast a signal for First Solar.  In a 3 month’s time span, the stock rose impressively by 41.89%, surpassing the S&P 500 return of 0.45%.  The market premium calculates to an astounding 41.44%.

Below is the latest forecast I Know First algorithm released as of today on October 25, 2016.  If we were to compare the forecast back in December 24, 2014, we can see both forecasts rate First Solar as a buy.  If the previous forecast on Dec. 2014 accurately predicted the stock would increase and it did by over 40%, the latest forecast below could indicate another high rate of return.

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence.