First Solar, Inc. (FSLR) A Sell Despite Positive Analyst Day

First Solar earnings

First Solar, Inc. (NASDAQ:FSLR) was up 20% on March 19 after the company showcased its technology roadmap at its Analyst Day. The solar company raised its conversion efficiency targets, lowered its expected production/system costs and provided yearly guidance that was above consensus estimates.

Sell rating reiterated for First Solar

First Solar, Inc. (NASDAQ:FSLR) gave an EPS guidance of $5.25 and $4.25 for 2015 and 2016, which was above the consensus estimate of $2.71/$3.68. Guidance was also above the estimates from Goldman Sachs of $3.17 and $3.21, respectively. Goldman Sachs analysts (Brian Lee, Thomas Daniel and Britt Boril), in a report on 20 March 2014, have lowered the EPS estimate for 2014 by 30% to $2.26 reflecting project timing. Analysts raised the 2015 EPS estimate by 36% to $4.30, and for 2016, EPS has moved up to $3.05 reflecting better volumes.

Analysts note that a rating of Sell was wrong ahead of the Analyst Day, which was primarily due to a negative stance on First Solar, Inc. (NASDAQ:FSLR) since January 2014. The negative stance, according to analysts, was due to the company’s inability to capitalize “on accelerating industry growth drivers and valuation re-rating catalysts that underline our Attractive coverage view on Solar.” Based on the same premise, the Goldman Sachs analysts have reiterated Sell rating as the concerns remained unanswered.

Concerns remain unanswered

For the short term, utility-scale growth, which is expected to dominate the company’s mix, is sub-10% compared to the analyst’s estimate of 45% for distributed generation. Also, First Solar’s take on the C&I segment promised limited potential. According to analysts, the company is satisfied with selling projects, and looks reluctant to try directly capitalizing on its “own and operate” system, which is preferred by analysts for improving margins and long term growth resulting in a higher valuation. Another issue that remain unanswered is the ‘out year estimate risk,’ which according to analysts remain high. However, analysts note that the issue will be more evident in 2016.

Goldman Sachs analysts list down a few takeaways from the First Solar, Inc. (NASDAQ:FSLR)’s Analyst Day for investors. For the short term, the guidance updates are mixed, but are high risk in the long term. The solar firm raised its conversion efficiency goals, which are impressive and will offer more cost potential. The company is seeking new markets for expansion, but most of them are in early stages, believe analysts.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at [email protected]

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