5 Images Every First Solar Investor Should See

On February 23, a Deutsche Bank research report shed some light on the proposed First Solar, Inc. FSLR "Yieldco JV" with SunPower Corporation SPWR.

Deutsche Bank upped its price target for First Solar from $60 to $68 and raised the company to a Buy rating from Hold.

5 Slides That Support The Yieldco JV

Equity Value Contribution

"Valuation is now based on approximately $14 of equity value from Yieldco at 5 percent yield plus 10x 2015 EPS of $4.53, plus $9 of net cash," the analysts wrote.

Key Assumptions

SunPower "has spoken publicly about approximately 640MW of potential yieldco assets consisting of 245MW operating, 183MW in construction, and 212MW contracted. In aggregate, SPWR expected these approximately 640MW to yield $90-100 million of unlevered cash, or $70-80 million of CAFD (85 percent payout ratio)."

Related Link: Why First Solar, Sunpower YieldCo Is Like Coke And Pepsi

Unsold Projects

"First Solar did not give specific details around what projects it would drop into a Yieldco, but as of Q3 '14 we see 755MW of unsold projects with a PPA slated for a 2015 finish, and 744MW of projects by 2016, for a total of approximately 1500MWdc of projects currently unsold with a signed PPA by the end of 2016."

Identified Assets

"FSLR has a stronger pipeline of unsold projects (mostly utility scale in the US) and strong balance sheet. On the other hand, SPWR has a great expertise in commercial/residential and international projects along with strong backing from TOTAL."

Forecasted Asset Pipeline

Deutsche Bank's SunPower Valuation Is Unchanged

SunPower's price target, meanwhile, "is based on 20x 2016E EPS of $1.96 plus $1.25B in target yieldco equity value," (discounted back 10 percent to arrive at DB's PT of $43).

Downside risks, they write, include: "Regulatory/execution issues for installations, ability to fill pipeline, financing costs/access, capacity expansion timing, cost reduction abilities, competitor panel pricing, pace of lease monetization/expansion."

Image credit: Bjorn Laczay, Wikimedia