First Solar Looking Good - Collins Stewart

Solar-panel maker First Solar (FSLR) should be able to reach grid parity in time to offset the effect of a possible decline in subsidies from governments, writes Collins Stewart analyst Daniel Ries in a note to clients this morning. Ries has raised his rating on the stock to “Buy” from “Hold.” Despite risks that subsidies will subside in 2009, writes Ries, “First Solar can hit lower price points if they are needed to drive demand as feed-in tariffs are reduced.” Calling First Solar “providers of the lowest cost solution on the market,” Ries goes on to say the company’s prospects for selling to utilities in both the U.S. and Europe countries have improved.

Ries thinks the construction of a plan in Malaysia, currently “progressing well,” is just one factor that may boost production significantly starting late next year. That would, presumably, further help the company cut costs by producing panels in greater volume. Writes Ries: “First Solar has not clarified its CY10 capacity expansion plans at this time, but we believe the company will continue to build facilities at a steady pace even after its 16 line Malaysia expansion is complete in late-2009, particularly if additional contacts are announced in the months ahead.” First Solar could also have some additional revenue from the cost to install panels, suggests Ries.

As a result, Ries’s estimates for 2009 rise from $2.077 billion in sales and $7 a share in profit, to $2.174 in sales and $7.24. He thinks the stock is worth $320, or 32x the $9.93 per share in profit, excluding some costs, that he projects for calendar 2010. Ries mentions a few caveats, including the company’s dependence on the mineral Telerium for its production, which is scarce; the prospect government subsidies will dry up before First Solar can be cost-competitive without subsidies, and the presence of start-ups that are trying to go head-to-head with First Solar in thin-film technology.

Comments

[Wayfarer]

I don't see the long term growth here that I see in the better crystalline manufacturers. My problem with FS and thinfilms in general is their solar efficiency. The solar panel is less than half the cost of a solar installation. So, a thinfilm solar farm with the same energy output as a crystalline farm requires twice as much land, concrete,steel, labor, wire, junction boxes... These additional costs are double for a thinfilm installation. The cheaper cost/watt panel price does not outweigh all of these other costs to me. And, on roof tops in cities, the best location for PV, space is at a premium and the lower solar efficiencies make even less sense. Further, silicon prices will eventually return to pre-2004 levels driving down crystalline panel prices by 30% more. If thin film can not improve its solar efficiencies it will not compete in the long run. Don't be caught holding these high P/E stocks when the market prices in their real installation costs. The crystallines like STP an SPWR are much safer bets in the long run.

[tamarak]

Wayfarer

A 2:1 disadvantage in efficiency would be a large disadvantage for thin film technology. Perhaps the disadvantage is not so great for FSLR?

"CdTe will generally produce more electricity under real world conditions than solar modules with comparable power ratings.
Solar cells become less efficient at converting solar energy into electricity as their cell temperatures increase. However, the efficiency of this semiconductor material is less susceptible to cell temperature increases than traditional semiconductors, enabling First Solar thin film modules to generate relatively more electricity under high ambient (and therefore high cell) temperatures. The semiconductor material also converts low and diffuse light to electricity more efficiently than conventional cells under cloudy weather and dawn and dusk conditions. As a result, First Solar thin film modules will generally produce more electricity under real world conditions than conventional solar modules with similar power ratings." From FSLR website.

Seems like most of the comments about efficiency assume that the efficiency of thin film panels cannot be improved while the silicon technology can. Is there a physical limitation for improvements to thin film technology?

[Wayfarer]

"Seems like most of the comments about efficiency assume that the efficiency of thin film panels cannot be improved while the silicon technology can. Is there a physical limitation for improvements to thin film technology?"

You will notice that the quote from FS only talks in generalities. All of the generalities are true but still only amount to a small improvement. So small that FS doesn't give it a value. Thinfilms are more efficient at high temperatures and in low light conditions but this is only a small and occasional improvement. In comparison to FS having a solar efficiency of 10.5 and SPWR having an efficiency of 22 these factors are not important. What matters is the rated solar efficiency when the difference is a factor of two. Also, thinfilms because they require twice as much area for the same energy output are not used on roof tops. Roof tops are the ideal space for PV because there are no distribution. This forces FS to be located in rural farms. In the U.S. sunbelt FS must compete against solar thermal which produces energy almost as cheap as coal. FS requires about 8 acres to produce one megawatt. Crystalline requires about 4 acres to produce one megawatt. Solar thermal in the sunbelt can produce a little less than one megawatt per acre. Thinfilms have to improve their solar efficiencies a great deal to be competitive in the long run.

[Cameco Jr.]

Further to Wayfarer's point, FSLR still has an unproven track record when it comes to the lifespan of their panels. In fact first generation CdTe panels were notorious for how quickly they degraded. My suspicion is that Ahearn will fly the coop long before those chickens come home to roost.

[fxtrader07]

always wonder why a P/E ration of 32 times estimated x excluding some (lowering) items is regarded as adequate in an industry where new disruptive technologies can hit any time. Sure, growth potential is there - plenty of it. But how much of that translates into real sustainable profits is highly uncertain. It's beyond me, why an uncertain, yet to materialize , unstable profit outlook is good enough to accept a 32 forward p/E. And at the same time, businesses with an extremely stable, highly certain p/E of 8-12 get sold like crazy. heck, there are good industrial metals mining businesses out there (and many of these base materials will be required in high quantities for solar panel fabrication!) trading for a forward p/E of 6 or 7 and a trailing p/E of 8-9, because they are regarded as 'cyclical' and therefore, instable. But these solar analysts assume that no such instability-discount should be factored in for solar panel makers? strange way of valueing things, indeed.