First Solar Inc. (FSLR) is slated to release its third quarter 2010 results on Thursday, October 28, 2010. The current Zacks Consensus Estimate for the third quarter is $1.92 per share, representing an annualized growth of 7.3%.

Previous Quarter Performance

First Solar posted second-quarter 2010 earnings of $1.84 surpassing the Zacks Consensus earnings per share (EPS) estimate of $1.60 by 24 cents. It however, fell short of the year-ago quarterly EPS of $2.11.

First Solar’s quarterly revenues were $587.9 million, up 12% from $525.9 million in the second quarter of 2009, soundly beating the Zacks Consensus Estimate of $550 million. The upside came from increased production volumes and systems revenue, partially offset by a decline in pricing and lower Euro exchange rates. Also compared to the first quarter of 2010, revenues increased $19.9 million, primarily due to increased turnkey system sales.

During the quarter, First Solar was able to reduce the PV module manufacturing cost to $0.76 per watt, from $0.81 per watt in the first quarter of 2010. Operating income also fell to $180.5 million from $204 million in the year-ago quarter.

The declines were primarily driven by lower module average selling prices and higher operating expenses that were partially offset by increased module production and lower module cost per watt. Net income in the was $159 million, down from the year-ago net income of $180.6 million.

Outlook

First Solar’s growth story will continue with its utility-based order backlog and strong balance sheet. The company focused on capacity build-outs, technological enhancements and cost minimization, enjoys technological superiority over its silicon-based solar peers.

For fiscal 2010, First Solar expects net sales in the range of $2.5 billion – $2.6 billion, reflecting reallocation of module capacity from its systems business to meet stronger module demand from its European customers.

The company expects its earnings per share to be in the range of $7.00 – $7.40. Total capital spending for the current fiscal is projected in the range of $575 million – $625 million. The company expects to generate $575 million – $625 million of operating cash flows in fiscal 2010.

Estimates Revisions Trend

Quarterly estimate is trending up gradually albeit by a cent over the period of the past week and month, implying that analysts are getting more positive about the company. The current Zacks Consensus Estimate for the third quarter is $1.92 per share, representing an annualized growth of 7.3%. The current Zacks Consensus Estimate is $7.41 for fiscal 2010, and $8.23 for fiscal 2011, respectively, which are also inching upward.

Agreement of Estimate Revisions

In the last 30 days, out of 37 analysts covering the stock, 4 analysts raised their third quarter estimates and one analyst has reduced his estimates. Additionally, 2 out of the 38 analysts covering the stock have raised their estimates for fiscal 2010 and 1 analyst has cut down his estimate.

Magnitude of Revisions & Earnings Surprise

The magnitude of estimate revisions indicates that the analysts are demonstrating their optimism about First Solar’s prospects. This has been helped by strong results, delivered by the company over the past four quarters.

With respect to earnings surprises, over the trailing four quarters, First Solar has outperformed the Zacks Consensus Estimate in all the four quarters by 3.47% to 18.34%. The average earnings surprise was a positive 11.89%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Our Take

Based in Phoenix, Arizona, First Solar designs, manufactures and sells solar electric power modules using a proprietary thin film semiconductor technology. The company’s solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity.

It sells its products to project developers, system integrators and operators of renewable energy projects primarily in the U.S. and Europe, with a distinct focus on Germany. First Solar also focuses on designing and deploying commercial solar projects for utilities in the United States.

First Solar’s growth story will continue with its utility-based order backlog and strong balance sheet. The company focused on capacity build-outs, technological enhancements and cost minimization, enjoys technological superiority over its silicon-based solar peers. In the short run, the Zacks #2 Rank (Buy) presents investors with a small window of opportunity.

We reiterate our long-term Neutral rating on First Solar since a volatile euro, apprehension over lower German subsidies, falling crystalline silicon prices and the glut situation for modules in the market may restrain valuation of the company over the longer run.

Also competition in the industry is becoming tougher by the day for U.S. solar players such as First Solar, who have a huge German exposure in their top line compared to Suntech Power Holdings Company Ltd. (STP), SunPower Corporation (SPWRA) and ReneSola Ltd. (SOL) whose markets are more diversified.

 
FIRST SOLAR INC (FSLR): Free Stock Analysis Report
 
FIRST SOLAR INC (FSLR): Free Stock Analysis Report
 
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