First Solar (FSLR) watched shares tank 7 percent in late trading on Tuesday after the company released its quarterly earnings report, but the bloodletting began in earnest on Wednesday when shares plummeted to 13.4 percent by the end of the regular trading session.
The reason for the sell-off was no mystery. For the recently ended period, First Solar reported net income of $34 million, or $0.37 per share on revenue of $520 million, compared to the prior year period during which the company’s net income was $110 million, or $1.27 per share on revenue of $957 million. While the year-over-year decrease was drastic enough, the company also came up short of the $0.56 per share that analysts had been expecting.
The steep drop for shares created an undertow that dragged other solar stocks with it. Solar City (SCTY) was down 4.5 percent and SunPower (SPWR) ended the day almost 10 percent lower, while the Guggenheim Solar ETF ($TAN) shed nearly 8 percent to finish the day at $26.27.
First Solar is one of the biggest photovoltaic manufacturers in the world, and its success in recent years has had a lot to do with the fact that the thin metallic films it uses in its panels, though not the most efficient means of harnessing the sun’s rays, were until recently the cheapest, giving it an edge over its many competitors in the US and abroad.
The more efficient and expensive crystalline silicon panels have dropped in price lately as the result of a glut of manufacturing capacity, as well as a simultaneous drop in the price of the raw materials used to make them. And while this has made solar energy much cheaper, especially for consumers, it has more or less erased the very attractive discount that First Solar had been able to offer. This situation has been compounded by the fact that renewable energy subsidies have declined from the US to China.
But First Solar also had some legitimate circumstantial explanations for its grizzly second-quarter income statement. The company said that it had delayed the closing of a sale of one of its projects during the second quarter, and plans to hold on to some of its larger projects further into the development process than had been originally planned, a move that can pay off in the long run, but will inflate capital costs for the immediate future.
The company attempted to constrain the reaction to its second quarter performance by announcing a deal with General Electric (GE) that would delegate the production of its own solar panels to First Solar. GE had until recently been touting a plan to build the world’s largest solar farm, but scrapped the plan in favor of its expansion into oil and gas. The two companies had been working together already, but the new deal will give First Solar all of GE’s intellectual property in relation to thin-film technology, while GE will become one of the company’s largest shareholders.
First Solar closed Wednesday with shares at $40.49, a price that according to Forbes is below the stock’s book value of $41.93. The company has advanced almost 50 percent throughout 2013.