First Solar Guides In-Line and Disappoints Again

Solar investors and traders know the post-earnings routine all too well by now: 1) solar company releases earnings, 2) after hours trading initially sends the stock up on stellar headline results for the last quarter, 3) and then trading sends the stock into negative territory once guidance rolls across the tape or during the conference call.

I had anticipated that this time would be different for First Solar (FSLR), and I put aside the script this time around. Yet, FSLR could not escape as the stock jumped up to $130 after the earnings were released but closed the evening at $117. The on-going irony is that FSLR has taken great pains over the past several quarters to pre-announce the company’s expectations and roll out long-range plans at analyst meetings.

FSLR guided earnings this year to a wide range of $6.05 to $6.85, generating a relatively reasonable forward P/E range of 17-19 based on the $117 price that closed the after-hours trading session. FSLR guided net sales to $2.7 to $2.9B. Free cash flow continues to impress at $180 to $290M. Guidance was in-line with analyst expectations – no doubt shaped by First Solar’s analyst meetings – but margins are forecast to come in at the low-end of previous company guidance.

At these valuations and operating performance, I am no longer keen to short FSLR. Company insiders have also not sold stock at these levels. In the past, insiders have dumped massive quantities of stock starting around $180 or so. The Federal Reserve’s surprise discount rate hike will no doubt complicate trading on tomorrow’s options expiration day, but I will be more interested in looking for buying than selling opportunities even with the dire technical outlook for solar stocks in general. (See recent post for a review of the overbought technical conditions and record short interest on FSLR).

Be careful out there!

Full disclosure: net long FSLR

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