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Bear of the Day: First Solar (FSLR)

Earnings looked good, but supply chain issues hamper future growth.

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This story originally appeared on Zacks

First Solar (FSLR) is a Zacks Rank #5 (Strong Sell) that is a provider of solar energy solutions. The company specializes in designing, manufacturing, and selling solar electric power modules using a proprietary thin-film semiconductor technology. 

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First Solar reported a real nice quarter back in July that rallied the stock 30%. However, the supply chain issues are hampering the solar industry and could impact future growth. So, investors should take caution as we head into the next few quarters.

About the Company

First Solar is headquartered in Tempe, AZ and employs over 5,000 people. The company was founded in 1999 and operates in the U.S, Japan, France and other locations internationally.

FSLR is valued at $10 billion and investors should be concerned with the valuation. The company holds a Zacks Style Score of “D” in Value with a PE of 22. At the same time, growth investors applaud the “B” Style Score in Growth.  

Q1 Earnings

Big earnings out in July, with the company seeing Q2 at $0.77 v the $.60 expected. Revenues missed and FY21 guidance was lowered, but revenue guidance was lifted.

The guidance cut was due to freight costs, which continue to move higher.  However, we are also seeing supply chain issues in the industry that could be an issue for further growth. Analysts are noticing and dropping numbers.

Estimates

Over the sixty days, estimates falling lower. For the next quarter, analysts have dropped their numbers to $0.72 from $0.65 For the next year, numbers have fallen from $3.10 to $2.69, or 20%.  

Despite the guidance cut and analyst's dropping expectations, the stock surged, moving from $80 to almost $107.

Supply Chain Issues

The bottlenecks in the supply chain are causing issues for a lot of companies. In the solar industry, the combination of getting materials and rising costs is a recipe for a couple quarters of trouble.

Steel and aluminum costs are key for solar panels and rising costs are a headwind. Despite good demand, these costs will trickle to the bottom line.

Technical Take

First Solar was one of the hottest stocks of 2007-08, with the stock shooting from under $50 to over $300 in just a year. However, during the financial crisis, the stock collapsed and never fully recovered.

After years of hanging on around the $50 mark, the stock has finally come back to life, moving over $100 a share. The stock is on the verge of breaking out, the fundamental issues discussed above are bringing in sellers on every move over $100.

The stock fell about 20% on the recent market sell off. Investors defended the 200-day moving average just under the $90 level and they will need to keep that area or the stock will likely fall back to summer support at $80.

In Summary

First Solar has some fundamental issues that will be a risk as they head into the next couple earnings reports. Investors should be on the defense until the supply chain issues can be overcome.

For those that want to be in the solar space, Tesla (TSLA) has exposure and is a bit more diversified. Plus, the stock is a Zacks Rank #1(Strong Buy).



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