If you’re like me, you believe that as ageing coal power plants are decommissioned, there’s enormous potential for renewable energy, and utility-scale PV (photovoltaic solar energy solutions) in particular. One company filling this void of providing clean and affordable electricity is First Solar, Inc. (NASDAQ:FSLR). If you want to learn more about solar energy, you can refer to information such as solar tax credit in Pennsylvania.

For those of you that are unfamiliar with First Solar, as the name suggests the company is a leading global provider of comprehensive PV solar energy solutions similar to the original site. The company designs, manufactures, and sells PV solar modules with an advanced thin-film semiconductor technology and also develops, designs, constructs, and sells PV solar power systems that primarily use the modules it manufactures.

As the world increasingly focuses on renewable energy solutions, the potential for solar power, particularly utility-scale PV, is becoming evident in various regions, including Australia. In Australia, where solar energy adoption is on the rise, Aus Energy Solar stands at the forefront, offering solar energy systems to homes for WA residents. By leveraging advanced thin-film semiconductor technology and expertise in designing, manufacturing, and selling PV solar modules, Aus Energy Solar plays a crucial role in bringing solar power to Australian households.

The company recently released it’s Q1 2016 earnings report which highlighted the following:

Net sales for the three months ended March 31, 2016 increased by 81% to $848.5 million compared to $469.2 million for the same period in 2015. The increase in net sales was driven by the sale of an additional interest in and construction on the Desert Stateline project, continued construction on the Silver State South and McCoy projects, and the commencement of construction on the Astoria project in late 2015. These increases in net sales were partially offset by lower net sales from the substantial completion of the AGL Nyngan and Copper Mountain 2 projects

Gross profit for the three months ended March 31, 2016 increased 22.7 percentage points to 31.0% from 8.3% for the same period in 2015. The increase in gross profit was primarily the result of the favorable mix of higher gross profit projects sold and under construction during the period. On a side note, nominations for the best technicians who are part of such a project are now open.

As of March 31, 2016, the company had 30 installed production lines with an annual global manufacturing capacity of approximately 3.2 GW at its manufacturing facilities in Perrysburg, Ohio and Kulim, Malaysia. First Solar produced 0.8 GW of solar modules during the three months ended March 31, 2016, which represented a 43% increase from the same period in 2015. This increase in production was primarily driven by higher capacity utilization, improved module conversion efficiencies, and additional manufacturing capacity. The company expects to produce approximately 3.1 GW of solar modules during 2016 as suggested by Solar Peak.

During the three months ended March 31, 2016, manufacturing facilities ran at 100% capacity utilization, which represented a 13 percentage point increase from the same period in 2015

The average conversion efficiency of modules was 16.2% for the three months ended March 31, 2016, which was an improvement of 1.5 percentage points from the three months ended March 31, 2015

That all sounds pretty good, but here’s what I really like about First Solar:

Advanced Technology

Without getting too technical, First Solar has a technological advantage.  The company uses an advanced thin-film semiconductor technology, versus traditional crystalline silicon solar modules.

“We believe we are among the lowest cost PV module manufacturers in the solar industry on a module cost per watt basis, based on publicly available information.”

“This cost competitiveness is reflected in the price at which we sell our modules and fully integrated PV solar power systems and enables our systems to compete favorably. Our cost competitiveness is based in large part on our module conversion efficiency, proprietary manufacturing technology (which enables us to produce a cadmium telluride (“CdTe”) module in less than 3.5 hours using a continuous and highly automated industrial manufacturing process, as opposed to a batch process), our scale, and our operational excellence.”

“In addition, our CdTe modules use approximately 1-2% of the amount of the semiconductor material that is used to manufacture traditional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules, and the timing and rate of change in the cost of silicon feedstock and polysilicon could lead to changes in solar module pricing levels.”

“Polysilicon costs have had periods of decline over the past several years, contributing to a decline in our relative manufacturing cost competitiveness over traditional crystalline silicon module manufacturers.”

Immaculate Balance Sheet

The company currently has cash and marketable securities of approximately $1.9 billion, and total debt of approximately $300 million. That’s a cash to debt ratio of 6.28 and interest coverage of 65x. This has been achieved while still maintaining healthy operating and net margins of approximately 19%.

Undervalued

Now for my favourite bit! First Solar currently has an enterprise value of $3.5 billion and operating earnings of $752 million, which means it has an Acquirer’s Multiple of 4.65. The company is currently trading on a P/E of 6.3, a forward P/E of 16, a P/B of 0.88, and P/S of 1.29.

For all the latest news and podcasts, join our free newsletter here.

FREE Stock Screener

Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple: