AMDP Investment Memo Final

TO: Clark Hansen, CEO, AMDP

FROM: Brian Tse, R&D, AMDP

DATE: Sep 29, 2020

 

SUBJECT: Recommendation to Invest in First Solar, Inc.

Today, too many corporations try to be social enterprises for the sake of meeting social expectations. In order to weed out these companies, I decided to search for specific industries that sell products and services with the intention of making a positive impact. This led me to discover the clean energy sector and settling on First Solar as the company of interest. 

Through extensive research and a thorough examination of the company’s financials, sustainability report, and core values, I have concluded that First Solar meets AMDP’s strict investment criterion and encourage you buy First Solar stocks as a long-term investment.

Allow me to remind you of AMDP’s investment criteria before proceeding with my analysis:

Triple Bottom Line: A sustainability framework to evaluate a company from the following three perspectives. (Kraaijenbrink):

1. People: the impact a company has on human capital such as employees, stakeholders, and the broader community that the business may affect.

2. Planet:  a measure of a company’s environmental responsibility. In its most simplistic form, this implies a company should not be producing anything detrimental for the environment. In practice, this term encompasses the policies and actions taken by a company to benefit the environment.

3. Profit: amount of monetary value added. It is the creation of wealth for company stakeholders and for the local community. For example, a company could benefit both parties by supporting local suppliers through its business.

Corporate Social Responsibility

Companies should aim to positively contribute to societal, economical, and environmental goals. This is a way for companies to be self-conscious of their social impact and for them to hold themselves accountable (Chen).

Social Enterprise

An organization that addresses unmet social and environmental issues through a market driven approach. In other words, an organization should seek to maximize company profits alongside social and environmental benefits (Social).

Carbon Footprint

A measure of a company’s greenhouse gas emission as a result of company operation.  It is usually a number measured as tons of carbon dioxide (CO2) emitted per year and can be further supplemented by CO2 equivalent gases such as methane and nitrous oxide (takepart).

About First Solar

First Solar, currently headquartered in Temple, Arizona, was founded in 1990 by Harold McMaster. The company’s primary business is in manufacturing solar panels and providing PV power plants to retail and corporate customers. Since its founding, First Solar has firmly established its status as the largest solar manufacturer in the world. In 2011, First Solar was ranked first on Forbes’ 25 fastest-growing American technology companies list and was also included in the Photovoltaik Global 30 index (German stock index comprising the 30 largest companies in the solar energy sector). Today, First Solar has truly become an international company with domestic offices throughout the US and international production lines in Germany and Malaysia. 

Following is my analysis on how First Solar fares according to our standards as outlined above. 

Corporate Social Responsibility: The “Nature” of the Business 

Notice that First Solar operates in the clean energy sector, which implies the company must be environmentally and socially responsible by nature. In other words, First Solar makes money by making the world a better place while other industries make money first and then try to make the world a better place. That’s a plus already. Even within the solar energy sector, there are several factors that give First Solar an edge over its competitors:

• First Solar continues to be a leader in lowest environmental impact with a carbon footprint of 12 tons versus an industry average of 24 tons. For comparisons sake, traditional energy sources such as oil and coal produce 850 and 900 tons per year respectively (First). 

• First Solar is the only solar energy company to employ vertical integration. This has allowed the company to offer a recycling service at the end of product life. Their mobile recycling units also reduces carbon footprint by mitigating unnecessary shipping. According to Kyle Field of CleanTechincas, “the concept of mobile solar module recycling is an innovative process that shows how First Solar isn’t just looking at its needs today, but at the needs of the industry tomorrow” (Field).

In addition to its normal business operations, First Solar also pursues multiple endeavours to achieve greater equality. Every year, First Solar allocates funds for “small, area-specific charitable donations” to help local businesses grow. Furthermore, the company has committed to achieving greater gender equality through its GLOW and 2020 Women on Boards initiatives (First). 

Profitability: How the Financials Fare Up

The sentiment around solar energy sector is mixed, but the general consensus on First Solar is that there’s growth opportunity. According to an article on Motley Fool, “First Solar is one of the few renewable energy stocks built to endure in the current economic and energy environment. It has 12.4 GW of bookings for future solar panel deliveries, a great balance sheet, and solid technology that's improving every year” (Hoium). In addition, while First Solar does not have the most efficient panels in the market, they have been able to win over competitors because of their low costs and scalability. Despite the pandemic, First Solar was able to record Total Revenue growth of 9.82% in Q2 of 2020 while competitors experienced contractions of -13.22% (CSIMarket). First Solar is holding its ground amid all the ongoing challenges and it’s proof that they’re operating under a successful business model. They’re clearly a company built to survive, but I’m confident that they’ll have the potential to thrive once the pandemic is over.

Invest or Not?

The transition to renewable energies is inevitable as technology continues to improve and costs continue to decline. With that being said, I believe there is still time for AMDP to hop on the renewables train. The solar industry is still in growth mode, and will continue to be for the next decade or so. Of course, there are risks facing First Solar and the solar industry in general, but for now, the long-term opportunities for the company seems to outweigh the risks. Therefore, I advise you to consider investing, and even shifting a significant portion of our portfolio, into First Solar.

Citations

Chen, James. “Corporate Social Responsibility (CSR).” Investopedia, Investopedia, 17 Sept. 2020, www.investopedia.com/terms/c/corp-social-responsibility.asp.

CSIMarket. “First Solar Inc 's Competitiveness.” CSIMarket, 2020, csimarket.com/stocks/compet_glance.php?code=FSLR.

Field, Kyle. “First Solar Breaks Down Its Plans For Solar Module Recycling #SPI2018.” CleanTechnica, 5 Dec. 2018, cleantechnica.com/2018/12/04/first-solar-breaks-down-its-plans-for-solar-module-recycling-spi2018/.

“First Solar Inc 's.” CSIMarket, 2020, csimarket.com/stocks/compet_glance.php?code=FSLR.

First Solar. “Sustainability Report - 2020.” First Solar, 2020, www.firstsolar.com/-/media/First-Solar/Sustainability-Documents/FirstSolar_Sustainability-Report_2020.ashx.

Hoium, Travis. “Is First Solar Stock a Buy?” The Motley Fool, The Motley Fool, 19 Apr. 2020, www.fool.com/investing/2020/04/19/is-first-solar-stock-a-buy.aspx.

Kraaijenbrink, Jeroen. “What The 3Ps Of The Triple Bottom Line Really Mean.” Forbes, Forbes Magazine, 10 Dec. 2019, www.forbes.com/sites/jeroenkraaijenbrink/2019/12/10/what-the-3ps-of-the-triple-bottom-line-really-mean/.

Social Enterprise Alliance. “What Is a Social Enterprise?” Social Enterprise Alliance, 11 June 2019, socialenterprise.us/about/social-enterprise/.

takepart. “What Is a Carbon Footprint?” TakePart, 11 July 2014, www.takepart.com/flashcards/what-is-a-carbon-footprint/index.html.