Argus Downgrades First Solar On Price Competition Concerns

Argus’ Stephen Biggar expressed concern regarding First Solar, Inc. FSLR's declining project backlog, as well as the impact of strong price competition.

Biggar downgraded the rating on the company from Buy to Hold.

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EPS Concerns

The analyst expects the company’s EPS to be hurt from 2017 to 2019 due to the extension of tax credits for solar projects.

“While customers have rushed to complete projects ahead of the original deadline in 2016, they will not face the same urgency in 2017–2018,” Biggar mentioned, elaborating that the incentives had now been extended through 2019.

This has led to a decline in backlog, while resulting in lower earnings visibility.

Best Positioned

“We continue to view FSLR as the best-positioned company in the solar industry based on three factors: its ability to remain profitable even as peers have been hurt by oversupplied markets and a lack of pricing power; its investment in cadmium telluride technology, which should provide a cost advantage relative to more commoditized technologies like polysilicon; and its positive cash flow and solid balance sheet,” Biggar stated.

First Solar is expected to benefit over time from the stricter environmental regulations for fossil fuel based power, as well as increased public and government support for clean energy.

Related Link: Barclays Breaks Down Its Outlook On Solar

Tech Investments Paying Off

The company intends to launch its Series 5 module in 2017, while starting pilot plan production for Series 6 in 2018.

“In preparation for these new modules, management is focusing its capital spending on the development of new technologies rather than on the addition of manufacturing capacity,” the analyst said.

Biggar believes there are signs that First Solar’s technological investments are bearing fruit, since they have helped the company reduce solar generation cost on a per-watt basis and expand its opportunities in utility scale projects.

At time of writing, First Solar was down 1.67 percent on Wednesday, seen trading at $37.61.

Full ratings data available on Benzinga Pro.