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Solar Industry and First Solar Write-Up

|Includes: First Solar, Inc. (FSLR)

This week Goldman Sachs announced that they believe “higher-than-expected demand and price declines will deliver stable returns even without subsidies” for the solar industry. Many are skeptical of the solar industry because governments, especially Germany, having been scaling back their subsidies. Rather than viewing this as a negative, this should be viewed as a positive. One opinion is that governments are scaling back subsidies because they see the solar industry strengthening, therefore, needing less funding. Here is a look at the one of Goldman’s top picks from the solar industry.

 

First Solar manufactures solar modules with an advanced semiconductor technology and provides comprehensive photovoltaic system solutions. The company is delivering an economically viable alternative to fossil-fuel generation today. From raw material sourcing through end-of-life collection and recycling, First Solar is focused on creating cost-effective, renewable energy solutions that protect and enhance the environment. First Solar was trading around $300 before the market crashed. The big question: was FSLR over priced at $300 or is FSLR underpriced at $130?

 

 

Our Commentary:

For a relatively young company, entering the stock exchange late 2006, First Solar has a lot of purchasing power, seeing as they just finished their acquisition of NextLight in an all-cash transaction valued at approximately $297 million. This is the fourth company they have acquired. NextLight’s first developed project, of which First Solar will do the construction, has already been approved. The 290 megawatt Agua Caliente Solar Project in Yuma County, Arizona will generate enough clean solar energy to serve the needs of about 100,000 average homes per year contracted to be purchased by Pacific Gas & Electric Company for 25 years. You can see from the industry chart above that First Solar really blows all of its competitors out of the water. From a fundamental standpoint First Solar is in a better to position to take advantage of the increase in demand for the solar industry. We look at First Solar as a solid company for a long term investment, continuing to be at the top of the industry as Solar grows. With that being said we recommend First Solar as a buy. Write now it is trading at one standard deviation above its average on a weekly chart. Technically, we would look to enter FSLR at or below $120. Should FSLR close below support at $100 stop yourself out.



Disclosure: Long FSLR options