First Solar Inc Valuation – August 2018 $FSLR
Company Profile (excerpt from Reuters): First Solar, Inc., incorporated on May 15, 2003, is a provider of photovoltaic (PV) solar energy solutions. The Company designs, manufactures and sells PV solar modules with a thin-film semiconductor technology. The Company also develops, designs, constructs and sells PV solar power systems that primarily use the modules it manufactures. It operates through two segments: components and systems. The components segment is engaged in the design, manufacture and sale of cadmium telluride (CdTe) solar modules, which convert sunlight into electricity. The systems segment includes the development, construction, operation and maintenance of PV solar power systems, which primarily use its solar modules. In addition, the Company provides operations and maintenance (O&M) services to system owners that use solar modules manufactured by it or by third-party manufacturers.
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ModernGraham Valuation of FSLR – August 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $5,423,736,443 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 4.89 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -130.85% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 316.74 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.08 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 4.89 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.14 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.17 |
| MG Growth Estimate | -4.25% |
| MG Value | $19.77 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $2.42 |
| MG Value based on 0% Growth | $1.42 |
| Market Implied Growth Rate | 154.12% |
| Current Price | $52.79 |
| % of Intrinsic Value | 267.05% |
First Solar, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.51 in 2014 to an estimated $0.17 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 154.12% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into First Solar, Inc. revealed the company was trading above its Graham Number of $34.6. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 316.74, which was above the industry average of 177.47. Finally, the company was trading above its Net Current Asset Value (NCAV) of $19.77.
First Solar, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $19.77 |
| Graham Number | $34.60 |
| PEmg | 316.74 |
| Current Ratio | 4.89 |
| PB Ratio | 1.08 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2018 |
| Total Current Assets | $3,986,040,000 |
| Total Current Liabilities | $815,412,000 |
| Long-Term Debt | $448,554,000 |
| Total Assets | $7,025,692,000 |
| Intangible Assets | $91,557,000 |
| Total Liabilities | $1,914,864,000 |
| Shares Outstanding (Diluted Average) | 104,776,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $1.09 |
| Dec2017 | -$1.59 |
| Dec2016 | -$4.05 |
| Dec2015 | $5.83 |
| Dec2014 | $3.90 |
| Dec2013 | $3.67 |
| Dec2012 | -$1.11 |
| Dec2011 | -$0.46 |
| Dec2010 | $7.68 |
| Dec2009 | $7.53 |
| Dec2008 | $4.24 |
| Dec2007 | $2.03 |
| Dec2006 | $0.07 |
| Dec2005 | -$0.13 |
| Dec2004 | -$0.39 |
| Dec2003 | -$0.78 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.17 |
| Dec2017 | $0.32 |
| Dec2016 | $1.40 |
| Dec2015 | $3.54 |
| Dec2014 | $2.51 |
| Dec2013 | $2.36 |
| Dec2012 | $2.33 |
| Dec2011 | $4.10 |
| Dec2010 | $5.69 |
| Dec2009 | $4.05 |
| Dec2008 | $1.93 |
| Dec2007 | $0.57 |
| Dec2006 | -$0.19 |
| Dec2005 | -$0.30 |
| Dec2004 | -$0.34 |
| Dec2003 | -$0.26 |
Recommended Reading:
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
