Though it’s only halfway over, 2011 is shaping up to be a forgettable year for many solar stocks. A slowdown in orders from Germany and Italy, which collectively account for half of current global demand, has led to price wars and declining forecasts.

Yet for one company, the end of the first half of June brought great news, which should help fill its coffers in 2012, 2013 and 2014. I’m talking about First Solar (Nasdaq: FSLR), which received $4.5 billion in loan guarantees on June 30, 2011 for three major projects. Those guarantees effectively ensure these projects can be financed with very low interest rates. And those low rates are likely to help First Solar to generate very impressive profit margins on the projects.

Analysts were quick to single the company out for praise:
 

• Needham: “Beyond the obvious benefit of securing loans for these projects, we believe the loan guarantees acts as endorsement by the Department of Energy.”

• Citigroup: “In our view, Street numbers are still way behind the curve on these projects.”
   
• Goldman Sachs: “Specific to these projects, we estimate a $3.90 to $7.80 potential cumulative incremental EPS impact from these loan guarantees.”
   
• Merrill Lynch: “The operating margins on these projects could be in the mid-30’s.”
   
• Credit Suisse: “The additional longevity at this high level is a key change in the equation.”

It’s this last comment, from Credit Suisse, that should really catch your attention. First Solar will build out these three major solar projects during the next few years in Southern California, which should keep profits at peak levels even as the rest of the solar industry wrestles with murky outlooks for 2012 and 2013. Credit Suisse had assumed First Solar would earn $8 to $10 a share in 2012 and 2013. Those numbers have suddenly shot up to the $12 to $14 range. Consensus forecasts have begun to rise, but remain well below the Credit Suisse forecast.

So why have shares fallen since that June 30 loan announcement? First, the stock had rallied ahead of the news, so some short-term investors booked profits. Second, there’s a decent chance First Solar delivers tepid second-quarter results and cautious guidance for the third quarter. This is a company with many moving parts, and near-term expense hikes and deferred revenue recognition can wreak a bit of havoc. (Look for second-quarter results in the first week of August.)

Yet this is a clear case of Wall Street myopia. Let others worry about near-term gyrations, opening the door for meaningful upside for those planning to own the stock for a year or two. By then, First Solar should cement its already significant industry leadership. This leadership comes from a rock-bottom pricing structure. First Solar’s solar panels, which use thin films of Cadmium Telluride (CdTe), are only about 60% as energy efficient as traditional silicon-based technologies. Yet First Solar can produce its products so much more cheaply that it undercuts rivals on a price-per-watt basis by around 25%. If history is any guide, then First Solar’s price leadership will only strengthen in the years to come.

The company is now taking its low-cost model into new markets, opening sales offices in India, China, Australia and the Middle East. And in the United States, solar demand is expected to rise steadily higher as a number of states meet targeted Renewable Portfolio Standards (RPS) that mandate a minimum amount of power be derived from renewable sources of energy. You can read more about RPS goals here.


Action to Take –> While many solar companies are faced with meaningful drops in profits in 2012 and 2013, First Solar’s profits should actually strengthen. As noted earlier, consensus profit forecasts appear far too low and will need to come up. Look for management to lay out the profit roadmap in the upcoming conference call. As analysts start to boost their profit forecasts, shares should start to move up toward the $150 mark and perhaps closer to $175, the stock’s 52-week high, spelling 40% potential upside from current levels.

P.S. — Few investors realize that a 20-year energy agreement between the United States and Russia is about to expire. This deal supplies 10% of America’s electricity. As broke as our government is, the situation is so serious that President Obama is asking for $36 billion to avert this crisis. And Republicans support him. Here’s what’s going on…