Bachman Cuts First Solar (Nasdaq:FSLR) to NEUTRAL - But “Would Own Shares Into Print”

Oct 12, 2009
Author: SCP Editor

October 12, 2009 – Mark Bachman of Pacific Crest weighed in with relatively surprising comments this morning about First Solar (Nasdaq:FSLR), downgrading the stock to a NEUTRAL rating, stating that “potential for upside has faded”. This is surprising because Bachman has been one of the strongest, and most eloquent advocates of FSLR on the Street, so we would recommend taking Bachman’s note seriously.

Key Takeaways

·         Finds no more upside potential to 2010 estimates – said that while additional project announcements and capacity additions will be forthcoming, likely to be catalysts for 2011 and not 2010

·         Near-term, believes FSLR will post better-than-expected results for Q3 and so “would own shares into the print” – “Our checks suggest that Q3 shipments were strong and that results should meaningfully beat the consensus estimates. We believe that our sell-side competitors are unduly bearish with concerns that ASPs will erode, and we are positioned more than $0.40 higher with our EPS estimates. The EUR/USD exchange rate has also been favorable again in Q3, averaging 1.385 versus our modeled input of 1.20. We are looking for shipments of 330 MW versus capacity of 300 MW.”

·         Could likely lose market share in 2010

·         2010 EPS should be down Y/Y based on new estimates – forecasting $7.83 per share (original forecast of $9.09)

·         Industry is heading for  slow season

·         Valuation not compelling without upside potential in 2010 - Our previous price target used a 25x multiple on our 2010 estimates. Assuming investors are willing to pay a significant premium for the name, a 25x multiple yields a possible target of $196. More conservative investors may use a 20x multiple; this would yield a $157 target price. At the 20x multiple, the stock is fully valued at current levels, while a 25X multiple suggests about 20% upside. With the new rating, we are removing our price target, but we clearly believe there is still upside, and especially so around the Q3 earnings report.

·         “We have lost our conviction to put new money to work in the name at  current  prices” but “We could become bullish on First Solar again if it can either make capacity announcements or project announcements that will have a material impact on 2011 revenues and earnings.”