The designer and manufacturer of solar modules that use thin film technology reported Q3 results last week that were mixed; however, it seems positioning ahead of these numbers was also on the more cautious side i.e. a fair amount of negativity already priced in.
Q3 revenue of $US801m was a 10% miss to consensus of $881m, however, this related to timing, while Earnings Per Share (EPS) of $US2.50 was ahead of $US2.02 expected and they have good visibility on their earnings from here. That said, a few issues have crept in that we need to be across.
FSLR production is sold out/contracted through 2026 and their backlog is solid, but given production is now sold out so far, they are finding it more difficult to extend their pipeline given the macro situation. For example, FSLR is hitting a
point where customers are less willing to sign contracts for deliveries in 2028-29 due to a higher funding burden. When companies place an order, they need to have financing arranged which is proving difficult that many years in the future.
FSLR is also in ramp-up phase, building out new solar capacity in the US, underpinned by very lucrative tax incentives, however, there is a delay between getting the $$ from the Government in the door that needs to be filled, so they are likely to need to raise debt, and clearly, the macro environment has been a challenging one for this at a time when there are many companies jostling to increase capacity to take advantage of these tax incentives.
That said, we continue to think that First Solar is in a unique position, has highly visible earnings out to 2026, and their margins are protected because of the way they structure contracts (i.e. pass through contracts), plus of course, the government incentives they are taking advantage of are phenomenal.
- We are maintaining the rage on FSLR despite prolonged weakness in the share price – a ~11% rally overnight on a better macro backdrop was encouraging!
MM remains long & bullish FSLR
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