First Solar, Inc. (FSLR) is seeing a significant jump in its stock price today after the company released earnings that were significantly above expected levels. The consensus expectations were for earnings of $1.51 but FSLR came in 30% above these levels with a $1.99 EPS level. This puts earnings 23% higher than the level seen in the first quarter and an astounding 249% above the first quarter of 2008.
Management did not issue any surprises in regards to forward guidance. But Raymond James analyst Pavel Molchanov noted that there was a bit less of the overly cautious undertones during the first quarter conference call than was heard after the year end call. The industry still faces a good bit of oversupply, and it is difficult to predict what kind of large scale stimulus initiatives will drive demand. We have heard good news out of China and the US so far this year, but the actual implementation of these plans still leaves some questions.
Still, First Solar should continue to be a strong player in the industry with its strong capital base, and passionate pursuit of lowering production costs. the ZachStocks Growth Model has a strong position in the company which was showing a 20% gain prior to today’s stock run-up. (For a free trial to the model click here). Raymond James has increased their price target on the company to $215 which is 42% above Wednesday’s close. The target is based on a PE of 25 compared to the 2010 estimate of $8.70 in earnings.
Even given the sharp move in the stock today, I still believe First Solar offers a strong opportunity for investors. The stock has built a solid base and the company is well ahead of its competition due to its financial stability and low cost production. If government stimulus kicks in from multiple countries, we could see even more of a rise in the industry. Other attractive opportunities include LDK Solar (LDK), and ReneSola Ltd. (SOL).
The recovery in solar stocks has taken much longer than I anticipated and may still face some challenges, but for now the picture appears to be clearing. Many of the stocks are trading for incredibly low multiples and have potential for exceptional gains as investors put aside their fear and price stocks based on growth prospects.
FD: Author has a long position in FSLR and LDK in the ZachStocks Growth Model and a personal options position in LDK
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