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Why First Solar, Inc. (FSLR) Earnings Could Stay Stuck in the Shade

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First Solar, Inc. (NASDAQ:FSLR) will release its quarterly report next Tuesday, and with the company having recently made bold predictions about its future, investors have piled into the stock after substantial declines over the past several years. But First Solar, Inc. (NASDAQ:FSLR) earnings might well not deliver good news to new shareholders either next week or well into the future.
First Solar, Inc. (NASDAQ:FSLR)

First Solar, Inc. (NASDAQ:FSLR) has been a rare success story in the solar industry, overcoming tough industry conditions by focusing on large-scale utility-based projects that are simply too large for most of its smaller competitors to take on. But what really attracted investors to the stock recently were moves to boost its efficiency by buying TetraSun, which they hope will push First Solar, Inc. (NASDAQ:FSLR) into the top echelon of performance and open new markets to the company. Let’s take an early look at what’s been happening with First Solar, Inc. (NASDAQ:FSLR) over the past quarter and what we’re likely to see in its quarterly report.

Stats on First Solar

Analyst EPS Estimate $0.53
Change From Year-Ago EPS (68%)
Revenue Estimate $721.08 million
Change From Year-Ago Revenue (25%)
Earnings Beats in Past Four Quarters 3

Source: Yahoo! Finance.

What’s behind the big drop in First Solar earnings this quarter?
Analysts have chopped their calls on First Solar, Inc. (NASDAQ:FSLR) earnings rather dramatically in recent months, slashing June-quarter estimates by more than half. Yet they see the long-term impact on earnings as minimal, actually raising 2014 estimates by about 1%. The stock has generally maintained its positive response to enthusiastic investors, rising about 8% since late April.

First Solar’s first-quarter report disappointed investors who had hoped for even more from the company after its big April announcements. Falling backlog of major projects and a big drop in gross margins that put the company in line with rival SunPower Corporation (NASDAQ:SPWR)‘s margin levels reflected the lack of interest in lower-efficiency solar modules, with SunPower Corporation (NASDAQ:SPWR) benefiting from its long-held emphasis on high-efficiency production.

In particular, First Solar’s efficiency disadvantage has largely kept it out of the fast-growing residential and small-scale commercial side of the solar business. With Solar City and SunPower Corporation (NASDAQ:SPWR) both growing their exposure to the residential solar market through leasing and other financing programs, they’ve not only found new outlets for modules but are building a more comprehensive solar-services business that offers higher margins and deeper relationships with customers. Moreover, if residential solar takes hold, it could threaten the utilities that make up First Solar’s major customer base.

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