First Solar, Inc. (NASDAQ: FSLR) is trading up ahead of its earnings report due after the close today.  Thomson Reuters (First Call) has estimates for the quarter ended December 31, 2008 at $1.30 EPS and $410.4 million in revenues.  While earnings are always important, there are many other metrics and other items to watch for today that should actually trump the importance of the past earnings.

As far as guidance, we expect the company to still offer guidance for the quarter ahead and for the year.  The consensus estimate for Q1-2009 is $1.39 EPS on $407.06 million in revenues.  For all of Fiscal-2009, the consensus estimate is $7.00 EPS on $1.98 billion in revenues.

Here is our problem with the guidance that will be given compared to estimates.  The consensus numbers just have not come down that much if you have listened to what the other solar players have been calling for.  This last quarter’s estimate of $1.30 EPS is only down 1 penny since the last report.  Next quarter’s estimate is only down a nickel off EPS in the same period.  And this $7.00 for all of 2009 would actually represent earnings growth or over 75% on revenue gains of more than 50%.

We have an issue with the growth expectations.  If the company actually maintains that high of a growth rate it will seem like a miracle.  That growth is exceedingly ambitious whether this company is the leader in the solar sector or not.  There have been too many problems in the sector with customers slowing or delaying orders due to either credit issues or to “cost vs. return” viability issues.  The Obama package will definitely help First Solar.  The question is whether it truly helps it gain or whether it really just keeps it from contracting.

The stock is up 4% right around $130.00 before the report, and when you combine a full month to options expiration it gets hard to use options for a steadfast prediction tool. We feel that options traders are braced for a move of well over $13.00.  And the volatility trade is just too expensive to trade.  An at the money straddle for one month out would cost nearly $27.00.

First Dolar’s chart shows no major success here.  While this is down well over half from its 52-week highs, the stock is still up over 50% from its 52-week lows.  Since its key breakdown in October, the stock has not been able to get back above $150.00 and hold it for any solid period of time.

As far as what analysts are looking for in price apreciation, the average target is now between $160.00 and $170.00.  So there is still upside if the analysts are right, but there is also an equal amount of risk and reward if you consider where the downdide has already been in recent months.

The short interest here is over 7.6 million shares.  Its 50-day moving average is above the current price up at $139.54.  The 200-day moving average seems almost not worth mentioning because it is up at $197.90.

While the credit issues of customers and the viability of many projects based upon current energy prices are know, the difference in the number of orders announced from previous months is also too hard to ignore.  We think it is very possible that despite our caution on analysts’ consensus, First Solar might not have to reiterate guidance at all.  The overall tone, even with the Omaba package, is still a very cautious one for the sector.  If the company can get anywhere remotely close to that forward number, then you could see a serious recovery rally based merely upon a “not good, but good enough” reception.

The other bit of data is that this one has also been kept away from buyers for much of the recent market malaise.  If the market decides to rally after Obama’s speech tonight, or even if the alternative energy and green business sector rallies on the Obama speech, then you could have a serious move.  It seems that there are always two sides to a coin, even during hard times.

Jon C. Ogg
February 24, 2009

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