First Solar Inc. (FSLR) showed an upside of 10% after an expert on Bloomberg claimed that the company may secure a business worth 1,000MW from NextEra (NEE). NextEra has already purchased ~275MW from FSLR, in comparison to only ~150 MW from other suppliers, mainly due to First Solar's thin-film panels. The expected increase in demand from NextEra, the installation of four solar plants in Mexico, and increasing exposure in emerging markets like India and Australia will help the company sustain its high revenue growth. Moreover, the stock is attractive due to its low valuations, trading at an EV/Revenue ratio of 0.5x, at a discount when compared to the industry average of 0.7x. The company's cost reduction program will further improve its valuation. Its low five-year expected PEG ratio of 0.19 implies that investors can buy growth cheaply. Therefore, we reiterate our bullish stance on the stock.
FSLR expects to secure a contract worth 1,000MW from NextEra, primarily because it is the only manufacturer capable of meeting such a high demand. Its solar panels, with thin-films, have high utilization. First Solar has already completed a project in Blythe; the construction of a 21MW power plant back in 2009, which was later handed over to NRG Energy (NRG). If FSLR gets the contract for the 1,000MW project, it will further strengthen our previous investment thesis. In our previous report, we emphasized that the company had strong growth opportunities, and had benefited from the U.S. government's anti-dumping policy on Chinese solar imports.
First Solar has taken another important step by appointing Bruce Young as the managing director for its China operations. The company has been looking for opportunities to expand in the Chinese market, which is expected to increase its solar power capacity target by 40% to 21GW by 2015. Young's appointment will help the company effectively expand its utility-scale power plant business in China. Young has 25 years of experience in the Energy Industry. Previously, he was the managing director of China Renewable Energy Investment Limited. Before that he provided his expertise to British Petroleum (BP) and British Gas and Energy.
It recently announced the construction of four solar plants, which will produce a total of 20MW for PNM Resources Inc. (PNM) in Mexico. The company will use its superior thin-film photovoltaic (PV) modules and help PNM achieve cost efficiencies. It will also provide construction, procurement and engineering services to PNM. First Solar has already been providing 22MW through its five projects completed in 2011. The new projects are expected to be operational by the end of 2013, and will provide clean and reliable solar energy.
The company has been trying to increase its exposure in the emerging markets of India and Australia. The completion of a 3.2KW solar photovoltaic (PV) system installation at the SEC in India will enable it to generate more revenue.
JA Solar Holdings (JASO)
Yingli Green Energy (YGE)
Suntech Power (STP)
Trina Solar (TSL)
PEG (5 yr expected):
Source: Yahoo finance
FSLR is trading at a forward P/E of 5.6x, an EV/EBITDA of 3.1x, and a P/S ratio of 0.6x. With an EV/Revenue of 0.5x, the stock is trading at a discount when compared to the EV/Revenue ratios of its competitors; JA Solar Holdings (0.6x), Yingli Green Energy (1.01x), Suntech Power (0.7x) and Trina Solar (1x).
Below are the details of FSLR's valuations and the target price of $95.
Average. EV/EBITDA(Last four years)
Estimated EBITDA of 2013 ($ millions)
Less: (Debt) ($ millions)
Add: Cash ($ millions)
Add: Marketable securities ($ millions)
No. of shares (millions)
Target Price of 2013