First Solar (FSLR: $60, up 5% yesterday) reported results for the September 2017 quarter that were much better than many had expected, although the good numbers were driven by revenue timing issues that we’ve previously discussed. For all of 2017 the company’s outlook was mostly unchanged. First Solar reported revenue of $1.09 billion, up 60% from the year-ago quarter and beating the consensus estimate of $825 million. It reported earnings of $1.95 per share, beating the consensus of 85 cents, and up 65% from the year-ago period. First Solar also reiterated its revenue guidance for 2017, in the range of $3 billion to $3.1 billion.
A major uptick in bookings was the major story to the quarter. What has changed is the demand environment, which appears to be significantly better than expected. The company booked a remarkable 4.5GW in net new bookings during the September quarter, 3x the run rate for the previous quarter, and doubled shippable backlog to 7.4GW. Those shipments stretch several years into the future. What the backlog tells us is that a) buyers appear ready to give First Solar and Series 6 a chance, and b) demand is good as project developers are making efforts to secure supply. Tariff worries may be a factor, but either way the bookings performance during the quarter was remarkable.
First Solar is seeing strong customer interest in its new Series 6 panels. The panels are viewed as one of First Solar’s most important product launches in years, as they allow it to compete more directly with silicon-based panels in terms of both conversion efficiency as well as total rated power, while bringing down costs considerably (as much as 40% below the company’s current generation Series 4 modules). The company expects Series 6 production to commence at its Ohio unit in Q2 2018, with total capacity ramping up to over 3 GW by 2019.
We do want to see more detail on capacity expansion plans. On the production front, the most noteworthy development is the reiteration of the plan to put Series 6 production into the Vietnam facility, while maintaining some level of Series 4 production in Malaysia. It is becoming difficult to judge how quickly First Solar will terminate Series 4, and it now appears possible that Series 4 output could stretch well into 2018. Sooner or later the company is going to need to invest in additional space. By our math the company can get to about 5.5GW of Series 6 output with its existing facilities, which is less than where First Solar probably wants to be by 2020. We expect to hear more at the company’s upcoming analyst meeting.
BMR Take: First Solar is crushing it and the stock is rocking. Our Target was $55 but we are moving that up to $65 and increasing our Sell Price from $39 to $49. EPS is on a swing to major growth from -$0.20 this year to $1.79 next year to much higher thereafter.