Shares of First Solar (FSLR) continue to trade down this morning following an 8%-or-so drop last night after a Q1 report that beat estimates but saw the push-out of a project in Q2 and some cautious comments about solar energy subsidy regulation in Europe.
First Solar shares are down $8.66, or 6.4%, at $126.
None other than hedge fund titan Jim Chanos was on CNBC yesterday afternoon talking down the stock, predicting the price could drop to “the mid double-digits.” Note that Chanos’s remarks came in the context of his warning to get the heck out of China, where he thinks the growth path of the economy is unsustainable.
There’s a real easy part of the story: Insiders are selling lots and lots of stock over the past year, and insiders are leaving the company. That’s never a good sign. Whether you should be short, we have some issues with some of their accounting, we have some issue with some of their subsidized markets. And quite frankly, solar, still, is at a point where it does not compete with natural gas. we cannot rely on wind and solar for base load. We’re still looking for the magic bullet for solar and wind. I think the stock certainly could earn a lot less than the $9 run-rate the bulls are looking at.
(See the video below.)
Eric Rosenbaum of TheStreet.com today offers some thoughts on what he says are Chanos’s repeat appearances on CNBC with bad things to say about FSLR.
I see three downgrades this morning — I missed one earlier, from Credit Suisse — and one upgrade in the Street’s initial assessment, but also a deep divide between those who don’t like how much emphasis has been put on the latter half of the year to make the $9 profit mark, and those who see plenty of levers for First Solar to pull:
Bullish!
Mark Bachman, Auriga Securities: Raised his rating on the shares to Buy from Hold, with a $160 price target. “First Solar modules remain in high demand given the combination of low price and high energy yield,” writes Bachman. Bachman observes that while subsidy reductions create uncertainty, as long as investors can obtain debt financing and as long as First Solar’s modules offer investment returns that are “above project hurdles,” then there will actually be a “dramatic increase” in solar investment as projects rush to get going before the next subsidy adjustment. First Solar has the ability to increase project installations in the U.S., and to get into new Asian markets. “We also recognize management’s historical accuracy of forecasting both sales and profitability, thus the reiteration of 2011 guidance speaks volumes to us.”
Robert Stone, Cowen & Co.: Reiterates an Outperform rating. The project push-out woes, the hand-wringing over Europe, and the back-end-loaded year outlook make for a buying opportunity in the stock, he thinks, as this is just a “pause” for the company.
Ramesh Misra, Brigantine Advisors: Reiterates a Buy rating and a $170 target. Today is a buying opportunity, as the North American utility-scale projects provide a buffer to European troubles. The projects push-outs and the tariff issues were “not entirely unanticipated,” he writes. “While any revenue push-out [from the company’s Agua Caliente project] is a negative development, we are not overly concerned about this. The company’s EPC business will, almost by definition, tend to be lumpy based on the timing of revenue recognition.” Misra also offers that any rise in the Chinese renminbi could have an adverse impact on Chinese competitors to First Solar.
John Hardy, Gleacher & Co.: Reiterates a Buy rating and a $165 price target. He’s keeping his 2011 estimate of $3.8 billion in revenue intact, while trimming his EPS estimate to $9.66 from $9.70. “Stock and sector are likely to remain under pressure until Italy is sorted out and poly module pricing begins to solidify, but we continue to view FSLR as an outperformed given project flexibility in the U.S.
Mark Wienkes, Goldman Sachs: Reiterates a Buy rating and a $190 price target, saying that he likes “the risk-reward in the stock, particularly given increased strategic interest in solar companies (Total, GE, Hanwha), cost cuts are tracking on plan and are allowing for constructive ASP declines, larger markets, and fewer variable competitors, and 2011 production is allocated, with the pipeline buffer offering a profitable source of demand in both the second half of 2011 and 2012 should European markets remain soft.”
Bearish!
Ben Pang, Caris & Co.: Cut his rating on the stock to Average from Above Average and cut his price target to $139 from $172. “We think there is much higher risk to estimates due to growing uncertainty regarding renewable energy programs in Europe.” With Europe accounting for 70% of shipments, by his estimate (I’m assuming he means industry shipments), Pang sees increasing political gridlock in Europe as being not fully compensated for by First Solar’s “buffer” in North America. Pang cut his full-year estimates to $3.74 billion in revenue and $9.38 in EPS from a prior $3.79 billion and $9.43.
Dan Ries, Collins Stewart: Cut his rating to Neutral from Buy, with a $144 price target from $180, and cut his 2011 estimates to $3.75 billion and $9.36 per share in earnings from a prior $3.79 billion and $9.60 per share. “Given that the Department of Energy process [which is part of the Agua Caliente ramp-up] is an unknown to investors, we expects First Solar’s P/E multiple to contract while the risk of additional delays is present,” writes Ries. He cut his own P/E to 12 times from 15 times. “We will reconsider our rating if the stock approaches $100 or if we get greater clarity on the construction schedule for its large systems backlog.”
Satya Kumar, Credit Suisse: Cut his rating to Neutral from Buy and cut his price target to $115 from $137. “Our view has been that the stock is not interesting until it is closer to the $100 to $125 range.” Kumar’s sum-of-the-parts valuation of the stock assumes $90 of value for the panel business; $11 for the system business; and $14 worth of value for the cash on the balance sheet and “management premium.”
Gordon Johnson, Axiom Capital: Reiterates a Sell rating. “First Solar’s guidance implies an acute recovery in the second half. We believe this year will be defined by multiple estimate revisions for First Solar.” Johnson thinks First Solar is implying it can double or triple the build-out rate of the Agua Caliente project to meet the $9.50 earnings target. That would imply, he argues, 50 megawatts per month for the project, when project terms as agreed to were for just 20 megawatts per month. “While this is admittedly possible … we believe there has been a fundamental change in the story,” given the implied cut to Q2 outlook, a lower outlook on module sales for Q2, which he thinks implies a build-up of inventory; and an average cost for modules that is flat, year over year, implying “the business of selling modules is becoming less profitable,” he believes.
Weston Twigg, Pacific Crest: Reiterates a Sector Perform rating. Twigg sees a “ramp-up” of the utility-scale solar business as a buffer for First Solar in the second half of the year against lower module prices caused by competing silicon products. Twigg is concerned, however, by the recent departure of Bruce Sohn, who was the company’s “manufacturing guru,” in his view. While there’s upside potential for $182 per share, he writes that he has “little conviction” in the stock hitting that.
Article courtesy of Tech Trader Daily
