Shares of First Solar, Inc. (ticker: FSLR) surged more than 12 percent on Wednesday following a big first-quarter earnings beat and guidance raise. However, the long-term outlook for U.S. solar stocks could hinge on President Donald Trump’s ability to use key provisions of the Trade Act of 1974 to provide pricing relief for U.S. solar companies.
First Solar shares initially spiked more than 12 percent after the company reported first-quarter GAAP earnings per share of 9 cents, on revenue of $892 million. Wall Street was expecting a loss of 13 cents per share on revenue of $667 million. In addition, First Solar upped its 2017 full-year revenue guidance range by $50 million and its EPS guidance by 25 cents per share.
While investors are celebrating the surprisingly strong quarter and more optimistic outlook from First Solar, the report serves as a rare bright spot for solar investors in recent years. Pricing pressures in the U.S. solar market have driven First Solar’s share price down by more than 40 percent in the past two years. However, Axiom analyst Gordon Johnson says future downside could be limited following a recent trade case filing by bankrupt solar panel manufacturer Suniva.
On April 26, Suniva filed a petition with the U.S. International Trade Commission to grant Trump the right under Sections 201 and 202 of the Trade Act of 1974 to provide relief to U.S. solar companies by placing a pricing restriction on imported solar panels. In the petition, Suniva suggests Trump impose a four-year minimum import price of 78 cents per watt for modules and 40 cents per watt for cells.
“While we see the likelihood of such a case passing as doubtful and view FSLR’s long-term business model as structurally flawed, with short interest at 23 percent, we view the risk of being short as acute should a compromise at 56 cents per watt on all imported U.S. modules be reached,” Johnson says.
“We believe the investment case on FSLR rests not with how much the company will earn in 2017 but rather where module prices will be in (2019) and what FSLR’s costs will be at the time.”
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