First Solar hits "Nasty Speed Bump"

First Solar FSLR fell 4.22 percent to $31.36 in regular trading, Tuesday. Then it fell 11 percent to $27.91 after-hours after another terrible earnings release.

According to Marketwatch, “First Solar’s ongoing business transformation has hit a nasty speed bump.” This has led to a weak sales and cash flow outlook for the first quarter. The market, obviously, didn’t like the news.

First Solar said it expects sales of $650 million to $750 million for the first quarter, below the $822 million consensus forecast by analysts surveyed by FactSet. The company expects cash flow anywhere from breakeven to up to $100 million. Analysts were estimating $214 million.

It also projected a first-quarter profit range of between 70 cents and 90 cents a share. Consensus puts the amount at 88 cents.

In December 2011, First Solar changed its business model to focus on solar farms for utility providers. The company blamed a combination of competitive pricing and the loss of a project in India for its soft outlook.

Currently, First Solar has nine projects sold and under construction in California, Arizona, Canada, and Dubai. Buyers include MidAmerican Energy Holdings, NextEra NEE and Exelon EXC.

Under its new model, First Solar earns revenue from providing construction services, selling its photovoltaic solar panels to power the plant, and in some cases, serving as the plant’s maintenance manager once it’s up and running.

First Solar intends to issue its full-year outlook along with its targets through 2015 when it holds an analyst day April 6.

However, unless First Solar can win more business, those targets will likely be hard to meet. Winning more business is only possible if there is more business to win. That requires growth in solar in the coming year.

Jigar Shah, partner at Inerjys Ventures predicts precisely that in Renewable Energy World.com saying, “The volumes are going to go up substantially next year.” Shah indicates that we are starting to see a proliferation of solar, based on the pricing that was indicated by manufacturers in 2012.

Nat Kreamer, CEO of Clean Power Finance, in the same article, concurs with Shah saying that in the same way over-investment in fiber optics led to inexpensive bandwidth, creating the foundation for the Internet economy we enjoy today, inexpensive solar modules will lead to explosive growth in the solar industry.

But analysts publish forecasts like these each year and so far, solar has failed to become the mainstream power source that everybody hoped. Add to that overseas markets that produce PV cells at a much cheaper cost and it’s not hard to understand why a large contingent of investors are playing First Solar as a takeover target.

Wall Street recommendations tracked by S&P Capital IQ, the average opinion on First Solar is hold, with an average price target of $23.41.