First Solar's Outlook Offers Relief for Smarting Investors

It’s easy to read too much rational thought into a market that is as volatile as U.S. stocks are these days, but it seems First Solar has just handed the solar bulls a couple of very good reasons to be optimistic.

The Tempe, Ariz.-based, maker of thin-film solar modules said sales in the third quarter reached $348.7 million, up from the $339 million that analysts had been forecasting. Net income came in at $1.20 a share, a long shot past the $1.01 number from analysts.

Gross margin in the quarter came in at 56.1 percent, up from 54.2 percent in the previous quarter and 51.6 percent in the third quarter of 2007. Even more encouraging in these days of tight credit, free cash flow was $41.6 million after being negative for the past two quarters. Being able to generate cash from operations is a big plus for solar companies these days.

But as 24/7 Wall Street noted in a post, more positive news came from the company’s guidance during the conference call. First Solar expects net sales to come in between $1.22 billion and $1.24 billion this year and between $2.0 billion and $2.1 billion next year. Analysts had been looking for $1.21 billion this year and $2.13 billion next year.

First Solar also announced long-term agreements to supply its modules to Sorgenia Solar of Italy and contract extensions with existing customers such as Ecostream, Juwi and Phoenix Solar. Together, the contracts total 525 megawatts and may generate $800 million in new sales through 2013.

First Solar’s guidance might not be seen as terribly aggressive, but coming after weeks of concern that weak credit could crimp growth next year. The cautious but encouraging earnings forecast, backed up with news of new contracts, could be the spark that investors have been waiting for to stage a solar recovery.

According to Reuters, there are still some concerns on that front, but First Solar is addressing them.

“First Solar Chief Executive Mike Ahearn said the company was confident that 85 percent of its business in Europe will receive the funding it needs. Financial concerns could impact about 15 percent to 20 percent of its volumes next year, but Ahearn said the company has identified ways it could reallocate those volumes to other customers if needed.”

In after hours trading Wednesday, the stock was trading as high as $137.88, up $22.13, or 19 percent, from its official close of $115.75.

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