Energy Business

Why First Solar YieldCo Will Dominate

First Solar would be having a good year even without the coming yieldco IPO. First quarter production volume rose 22% year-over-year and 6% sequentially to 540.3 megawatts, reflecting improvements in both technology and manufacturing efficiency.

The company increased its solar module’s efficiency to 14.7% in the first quarter. That is the rate at which the cell converts sunlight to electricity, and the first-quarter number is 120 basis points better than a year ago and 30 basis points better than reported in the fourth quarter. Argus expects efficiency to reach 16.3% this year, a level the company has already managed in pre-production modules.

The company booked 900 megawatts of new business in the first quarter and shipped 700 megawatts, yielding a book-to-bill ratio of 1.3. The company’s project backlog is approximately 3,900 megawatts, up from 3,700 megawatts at the end of 2014.

Argus winds up with some notes of caution on the stock:

  • “The greatest risk for First Solar is that in radically reworking its go-to-market model, the company miscalculates the available market opportunity, particularly in the solar utility market outside the United States. We believe that the company has the large project personnel, experience, and track record to lead in the solar utility market on a global basis, much as it dominates in the U.S.”
  • “At this stage, we believe that a primary risk to an investment in FSLR remains a resetting of industry valuations, as energy prices remain volatile, industry competition remains fierce, and strained government budgets create increased risk for subsidies.”
  • “The decline in polysilicon pricing is pressuring pricing throughout the industry, even among First Solar’s customers.”
  • “If the market for utility scale solar power generation does not expand significantly over the next few years due to cost factors or technological or political developments, First Solar would likely experience slower-than-anticipated growth.”

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First Solar’s foray into the ownership of solar projects increases the company’s financial risks and may significantly extend the time for a return on investment from such projects.

Shares of First Solar traded up about 1.4% in the noon hour Tuesday, at $57.56 in a 52-week range of $39.18 to $73.18. The consensus price target on the stock is $64.31, and the Argus price target is $78, including $12 per share in net cash.

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