Bottom line. "We have reviewed FSLR's 10K which provides
additional segment and other disclosures. We are revising our 2013
rev/EPS from $3.38bb/$5.44 (from 1330MW of project revenue
recognition) to $2.68bb/$2.92 (from 1072MW of projects). While the
EPS is much lower - it is primarily a placeholder to reflect
uncertainty in timing of revenue recognition of projects. We leave
our $23 PT on FSLR unchanged. Our valuation methodology for FSLR
relies on the company's projected cash flows from existing backlog
(there are NO changes there), the company's ability to lower costs
(we still believe FSLR has the potential to be competitive longer
term) and the company's ability to generate new pipeline (we are
hoping to hear more on this front at analyst day, but see FSLR as
having some core competencies). We are less concerned on revenue
& EPS timing but we do consider FSLR's competitiveness in
winning new contracts for its utility scale business. We are
lowering our 2014 EPS estimates to $2.37 from $4.48."
FSLR has some positives that should provide downside support
near our PT. "FSLR disappointed last week on cost reductions and
more importantly did not book sufficient projects into backlog
noting that it lost bids to other EPC players likely using cheaper
panels. But there are some positives: (i) FSLR's balance sheet will
likely continue to strengthen and we think the company will acquire
more pipeline; (ii) The company's latest achievement on 18.7%
efficiency is a fairly remarkable achievement - we think the
company will lower its long term cost target at the analyst day in
May; (iii) Some of FSLR's EPC contracts could qualify for incentive
payments (could be as much as 10% of value) at the time projects
are completed. There are several projects that should achieve final
completion milestones in 2013/14/1Q15 (eg - Topaz, Desert Sunlight,
Agua Caliente, AVSR, Campo Verde). (iv) Permitting, sale of
projects and conversion of certain projects from mid-stage to
backlog have limited color on 2013 guidance - these could be
alleviated by the time of analyst day."
Valuation. "We are ascribing the following values to the sum of
parts: (i) Projects value, less expected capex, opex, taxes and
cash losses from panel business through end-2014 plus current net
cash: $17/share (the primary driver of value here is FSLR's
disclosure of $2.8-2.9bb in net-cash receipts through 2014 from
existing contracted pipeline, less modest losses at current levels
that we expect to continue in the panel business and our
assumptions on opex/capex); (ii) Panel business valued for option
value post 2014 @ 0.2x replacement value at $2/share (this is the
multiple for value that gives an IRR > WACC for an acquirer of
FSLR's manufacturing assets at our assumed level of profitability
longer term for panels - this value could increase if panel prices
continue to increase); (iii) Value for system business to generate
on-going new business $4/share (this assumes FSLR generates new
pipeline at the bookings rate of 650MW per year; we use the lower
end of FSLR's guidance for EPC ASPs; and use an OpM of 5%. We
arrive at our PT of $23 from a sum of the parts."