First Solar: "Here Comes the Sun"

10/11/2016 7:00 am EST


Briton Ryle

Editor, The Wealth Advisory

It's been a bad six months for solar stocks. But I consider this featured solar stock – which we’ve held in our portfolio for two years – is the best solar stock in the world, states Briton Ryle, editor of The Wealth Advisory.

First Solar (FSLR) is currently trading at 1 times sales, even though it is profitable and has roughly 30% of its market cap in cash. What's the problem?

Well, the problem is solar tax credits. These credits have helped solar stocks, as they encourage consumers to deploy solar panels. And those tax credits were supposed to expire at the end of 2016.

So anybody wanting to put up some solar panels or build a solar farm was pushing to do it this year, before the tax credits expired.

With order books jammed for 2016, earnings have been great. First Solar will do around $4.25 a share this year. But what about 2017? Well, that's the problem.

Solar companies have light bookings for 2017. And the concern for what that will do to earnings is why the stocks have been hammered. First Solar's 2017 earnings-per-share estimates have been cut to $2.22.

But of course, there's always a point where the worst is priced in, and there is room for some upside surprise. I think First Solar may be at that point right now.

The stock is very cheap. And it has a ton of cash. What's more, First Solar may not be that far away from offering a dividend. The company only has 100 million shares outstanding. And it has $1.4 billion in net cash.

While it's true that First Solar is cash flow negative for the year, that is in part due to R&D expense for its fifth-generation panels.

With new, more efficient panels coming out and an extension of the solar tax credit, 2017 could be a decent year for First Solar. And what better way to reward its shareholders than with a dividend?

First Solar could easily offer $1 a share to shareholders. That would give it a yield of 2.7% and a payout ratio of less than 30%.

I can't tell you this will definitely happen. But we are getting closer to the time when First Solar will move from the "Future Dividend Payers" section of the portfolio to the "Dividend Growers." It's a good idea to own the stock before that happens.

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