In early 2011, this stock traded at a high near $175. Within a
year,shares plummeted to less than a third of that value, near $50.
They continued in a freefall into early summer 2012, hitting a low
near $11.40 in early June. Since that time, they have more than
First Solar (Nasdaq:
-- the world's largest producer of thin-film solar panels -- looks
to be headed even higher. If a significant nearby resistance level
can be broken, the technicals point to sharp gains ahead.
Helping buoy the stock are rumors the company may be awarded a
major contract to supply solar panels to electric utility,
NextEra Energy (NYSE:
. The panels would be used for a solar farm in Southern California
that would become the largest solar operation on the planet.
First Solar is a front-runner because it's one of the only
manufacturers with enough capacity to make the project happen. The
company also has a history of supplying panels for similar
First Solar is currently building a large solar farm in Arizona,
for electric utility company
NRG Energy (NYSE:
. The solar farm, known as Agua Caliente, is 85% completed and will
also be one of the world's largest solar farms.
In addition to these U.S. projects, First Solar has its sights
set on China. This past August, that nation announced plans to
increase solar power to 40% of total generating capacity by 2015.
This target marked the third increase in a year. In response, First
Solar recently appointed Bruce Yung as managing director of
business development for China. Yung has 25 years experience in the
energy industry and recently served as managing director of a
private firm, China Renewable Energy Investment.
Traders seem optimistic about First Solar's potential. As the
two-year chart below shows, the stock was in amajor downtrend for
all of 2011 and much of early 2012. In just a year, shares tanked
92% from the June 2011 high of $142.22 to the June 2012 low of
However, since hiatting this low, the stock has been climbing
higher. In late June, shares hit a high of $16.42 before
retreating. The stock found support around $13.86 and held
thissupport level into mid-July.
At that time, shares again began to climb. By early August, the
stock had broken the major downtrend line -- a significant
technical feat. Continuing thebullish momentum, shares moved to a
high of $24.93 by early September. In doing so, the stock has
almost completed a basing pattern.
First Solar now has met resistance at the $23 to $24 level. For
the past five of six week, shares have unsuccessfully attempted to
break this resistance. However, the more times resistance is
tested, the more likely it is ultimately to be broken.
If the stock can break out above $24, it could easily climb
close to $30 before encountering another small shelf of resistance.
If it was able to penetrate $30, shares could test $50 before
encountering another significant resistance level. From current
levels, this means the stock could again double.
This strong technical outlook is supported by a solid
fundamental outlook. Although analysts project third-quarter
revenue andearnings to drop from year-ago levels, fourth-quarter
results are expected to be superb. Based on an increase in both the
number and size of projects, analysts' project fourth-quarter
revenues will surge 98% to $1.3 billion, from $660.4 million in the
comparable year-ago period.
The company also expects full-year 2012 results to be strong and
recently increased guidance. Management now expects revenue to be
in the $3.6 billion to $3.9 billion range, up from previous
estimates of $3.5 billion to $3.8 billion.
The earnings outlook is similarly positive. Fourth-quarter
earnings are expected to skyrocket 48% to $1.86, compared to $1.26
per share in the same period a year-ago.
Management expects full-year 2012 earnings to be in the range of
$4.20 to $4.70, up from previous forecasts of $4 to $4.50. That
means at current levels, the shares are trading at just over 5
times 2012 estimates.
The company is also attractively valued based on its projected
five-yearPEG ratio (price-to-earnings divided by growth rate) of
0.19. A PEG of 1 or under typically shows good value.
Risks to consider:
Although First Solar hopes to expand into China, it might meet
significant competition from rival China-based solar manufacturers.
Although this outcome could impact the company's growth, First
Solar has a stronghold in the North Americanmarket . It appears
likely the company will continue to supply solar panels in the
United States for the world's largest solar farm projects.
Action to Take -->
Place a buy-stop order at $23.83, a few cents above current
resistance, good until Friday, Oct. 26. Set stop-loss at $13.84,
slightly below important major support. Set target at $51.89 for a
potential 118% gain by mid-2013. Risk/reward ratio is 3:1.
This article originally appeared on TradingAuthority.com:
This Decimated Solar Giant Could Double From
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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