First Solar Not as Fun as SOLF Today

Includes: FSLR, HQCL
by: Tiernan Ray

What has been a fun day for Chinese solar panel tech company Solarfun (SOLF) is turning out to be not so fun for holders of stock in U.S. solar panel technology vendor First Solar (NASDAQ:FSLR). The company Monday held its first analyst day since its IPO a year ago, and apparently what the company had to say was not quite enough for bulls on the stock: the shares are down almost 6% Tuesday, or $12, at $216.44.

A brief roundup of opinion:

  • Signal Hill Research analyst Michael Carboy writes that “ultra-bulls” may have come away disappointed from the analyst day, as a result of a few things management said. First, the company is not likely to announce additional plant startups given that it already has four plant startups underway. Carboy says some ultra-bulls may have been looking for signs of expansion in the company’s thin-film module production. Second, but related to the first point, First Solar is not looking to boost gross profit as a percentage of sales by boosting capacity to capture unmet demand, which Carboy thinks is a sound strategy, but which might have disappointed those looking for some margin upside. Carboy rates the shares Hold. He doesn’t have a price target for the stock, but I would note that based on a much lower profit estimate for the year ending Dec., 2009 than peers, at $3.60 per share, his model reflects a much higher P/E for the company, at roughly 64 times.
  • The big news, according to CIBC World Markets analyst Adam Hinckley, is that the company will be entering the U.S. utility market for the first time, via the acquisition, announced last week, of DT Solar (which has funding from media mogul Ted Turner). Hinckley says that DT Solar’s sales to utilities can generate twice the revenue of First Solar’s traditional sales of thin-film solar panel modules, though the gross profit on those sales is lower than has been the case for First Solar. While “We expect the move into the U.S. utility market to drive net income growth,” Hinckley notes however that, “Even if DT Solar experiences significant growth, it may take a couple years to impact FSLR’s financials.” Nonetheless, he’s raising his price target on the stock to $250, from $230. Like I said, Hinckley and others have more, uh, modest valuation for First Solar: $250 represents a 50 times multiple of the $5 per share in earnings he thinks First Solar can make in 2009.
  • The main takeaway from the event, which did not involve “significant announcements,” writes Collins Stewart analyst Daniel Ries, is that First Solar aims to compete worldwide without subsidies for solar power, by bringing down the cost per watt of its photovoltaic products. That would be good, since First Solar shares took a dive last month on word the U.S. Congress may leave solar out of renewable energy tax credits. The company, says Ries, laid out a roadmap in which it can bring its cost per watt to $1 to $1.50 by 2011. That will require the company to bring its own cost of manufacturing down to 80 cents per watt. The cost per watt to First Solar was $1.16 in the most recent quarter, notes Ries. Ries has a Buy rating on shares of First Solar and a $260 price target, which, like Hinckley, he justifies as a 50 times P/E, with his estimate for 2009 profit being slightly higher at $5.26 per share.

First Solar shares have risen nearly nine-fold since its IPO on Nov. 17 of last year.