First Solar Inc (FSLR.O) this week cast itself as a formidable survivor of solar industry turmoil, but some in the market expressed doubt that the company would be able to meet aggressive goals for cost reductions, technology advances and contract wins.
Investors drove the company's stock down 7.7 percent on Wednesday as many cashed in on a staggering 45 percent rally the day before. During a lengthy meeting with analysts, First Solar on Tuesday forecast profit and revenue far in excess of most analysts' expectations.
The company said it would reduce manufacturing costs and improve the efficiency of its solar panels dramatically over the next four years. That, along with its strong balance sheet, would enable the company to compete well in the market against cheap panels made by debt-laden Chinese competitors, its management said at the meeting.
But some investors raised concerns about the company's expectations for bookings beyond 2013. Most of First Solar's expected 2013 shipments are under contract, but only 40 percent and 20 percent of forecast 2014 and 2015 volumes, respectively, are contracted. In addition, First Solar is planning to spend the next few years entering new, unsubsidized markets like the Middle East, India and Chile - and said it will have to price aggressively as it does so.
"A lot has to happen for it all to fall into place," said Cowen and Co analyst Rob Stone, who has a "neutral" rating on First Solar shares.
In recent months, many in the market had worried that First Solar's pipeline of utility-scale solar projects would dwindle as U.S. utilities meet state mandates to source a percentage of their power from renewable sources.
"Demand has been more robust than I think a lot of people anticipated," First Solar Chief Executive Jim Hughes said in an interview on Tuesday.
But the company's presentation didn't eliminate those worries entirely. Shawn Kravetz, whose hedge fund Esplanade Capital sold calls on First Solar shares on Tuesday and shorted the stock late in the day, said he was concerns that the company's 550 megawatt Desert Sunlight project in California would account for an outsized portion of earnings in 2014.
"Unless you have equally lucrative projects with which to replace this in future years, it just means that earnings once these juicy projects are over are going to fall," Kravetz said.
The solar manufacturing industry has suffered greatly in the last few years as cheap Chinese panels flooded the market at the same time key European markets were slashing subsidies. The result was a dramatic and rapid drop in the price of solar panels that has hurt industry profits and driven many players out of business.
That turmoil is far from over. On Wednesday, Chinese solar company JinkoSolar Holding Co Ltd (JKS.N) reported its sixth straight quarterly loss.
First Solar has benefited from generating about two-thirds of its revenue from selling power plants to utilities, and one analyst said he was optimistic that the company would meet its targets given its track record of achieving cost reduction and efficiency goals over the last five years.
"It's easy to be down on things when they are three years away," said Ben Kallo, an analyst with Baird Equity Research. I lean more towards them getting it done."
(Additional reporting by Swetha Gopinath in Bangalore; Editing by Joyjeet Das and Steve Orlofsky)