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Analyst Actions: First Solar Target Price More Than Halved at Credit Suisse

Systems profitability less than expected; Lowering Estimates and Target Price to $30 (from $62). FSLR shares have hit a year low $30.04 today.

Bottom line, systems profitability less than we expected. "FSLR hosted a special guidance call for 2012 before market hours today. Company guided 2012 GAAP rev/EPS to $3.70-$4.0bb and $3.75-$4.25/sh, below consensus at $4.09bb/$7.42. Key negative was that system margins are lower - lower pricing, higher costs than expected - as a result our pipeline valuation declines from $28/sh to $19/sh. We are revising our TP to $30 from $62 from a SOTP valuation of $25 DCF pipeline valuation and $5 in net cash. There were some positives - operating cash flow will improve, below the line items like opex/start-up costs/taxes were better than our model, and company further lowered its long term cost metrics. We are revising our 2011 EPS from $6.51 to $4.87; 2012 from $8.13 to $4.08; and 2013 from $7.77 to $5.82."

System price variances vs our model. "There had been visible positive data points such as the up to $1.36bb sale of 190MW (AC) AVSR to Exelon and $967mm DOE guarantee for 230MW (AC) Agua Caliente projects that led us to assume ~$3.66/watt system price (DC) in our models for CY12. FSLR has also been vocal in saying its panel and BOS costs are declining - combined, these two will only be ~$1.60/watt including under absorption charges in 2012. FSLR guided to $1.7bb in system revenue and 1.2GW in system completions, well above our model at $1.25bb/866MW. On the cost side, this suggests a "system ASP" (same as cost as system margins are 0) (ex-panel) of $1.65/watt, which was well above our estimate of $1.45/watt (which we thought was reasonably conservative - assuming 87c/watt standard BOS + 25-50c/watt of non-standard costs). FSLR is certainly not assuming a third party channel price less than its cash cost which is probably ~65c/watt, as the company noted a 10% volume reduction in its channel sales would impact EPS by 30c - if panels were sold below cash cost, fewer panel sales would increase profits. Assuming FSLR sets channel prices for the 740MW at 0% GM (~75c/watt) - the implied system price including panels to get to revenue guidance (excluding Desert Sunlight) was only ~$3.25/watt, well below our $3.66/watt estimate. The margin difference of 60c/watt on systems, combined with slightly lower channel panel price assumptions (we were previously at 81c/watt for channel modules) and combined with the previously disclosed revenue push out on Desert Sunlight (we were modeling 100MW of non-GAAP Desert Sunlight revenues, company guided to 175MW of completions) led to the variance in guided EPS vs our estimate."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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