First Solar shines in Q3

Solar panels maker First Solar, Inc. (FSLR) posted third-quarter profit that more than doubled from last year, citing strong demand. The company boosted full-year expectations, and issued inline FY09 outlook.

Net income rose to $99.3 million or $1.20 per share, from year-ago $46 million or $0.58 per share. Year-ago period included a one-time tax benefit of $7.5 million. Analysts were expecting $1.01/share for the latest quarter. The company has topped estimates in the last four quarters, by an average 33%.

Revenues more than doubled to $348.7 million from $159 million last year.

Gross margin was 56.1%, up from 54.2%, in the second quarter and 53% in the first quarter. The company, however, expects gross margins to decline sequentially due to the further decline of the euro exchange rate and continued expenses from ramping up production capacity in its Malaysian facility.

Lately, solar stocks have taken a hit as the current downtrend in crude prices has raised serious questions about alternative energy economics. The solar industry is also weighed by concerns that the credit crunch could hurt funding for new projects and slow down the industry's recent aggressive growth.

The shares of First Solar have erased about 57% of their value thus far this year, although the company has a niche product that ranks it highly with alternative energy investors. First Solar makes thin-film photovoltaic solar cells, which are cheaper to produce than the silicon-based solar cells that rule the market.

In its conference call, the company addressed the impact of financial concerns on its projects, in a bid to allay the fears of investors. The company noted that about 85% of its business in Germany is eligible for funding from the KFW, the German Reconstruction Bank that finances solar project loans originated by banks to finance projects owned by German equity investors. The KFW program applies to projects located throughout the European Union, not just in Germany.

However, potential financial concerns could impact about 15-20% of its planned sales to Europe in 2009, the company acknowledged, but said it has identified ways to reallocate those volumes to other customers if needed.

The recent passage of an energy bill that continues tax credits for alternative energy investments came as an unexpected bonanza, considering the same bill was rejected only the week before it was passed. The tax credits would have otherwise expired this year, in the absence of a renewal. First Solar is certainly positioned to benefit from the extension of tax credits.

Separately, the company announced its debut into the U.S. residential market with a five-year deal to supply 100 megawatts of solar panels to residential installer SolarCity, which operates in California, Arizona and Oregon. First Solar is also taking a minority stake in SolarCity with a $25 million equity investment to support the private company's push for geographical expansion.

First Solar also announced several supply agreements, including a new deal to supply panels to Sorgenia Solar, a developer of solar power plants in Italy. The deals expand the company's backlog by over 525 MW, for additional sales of about $800 million over the 2009-2013 timeframe. The company's current backlog under long-term contracts is about $6.3 billion.

On an upbeat note, the company revised up its full-year sales targets to $1.22 billion- $1.24 billion from $1.175 billion - $1.225 billion. Analysts foresee $1.21 billion.

For 2009, the company sees net sales of $2 billion to $2.1 billion, inline with the consensus estimate of $2.13 billion.

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