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RBC Capital Analyst Explains First Solar Downgrade

RBC Capital Analyst Explains First Solar Downgrade

Mahesh Sanganeria of RBC Capital downgraded First Solar, Inc. (NASDAQ: FSLR) to Underperform from Sector Perform, following which shares of the company nosedived.

Sanganeria was on CNBC recently to explain why he downgraded the stock.

2016 Could Disappoint

"The key thing here is that there is a sharp blip in gross margin, I think, which investors are not appreciating," Sanganeria said. "Although the company has been pretty transparent, they have been telling us that the gross margins are going to be in [the] 15 to 20 percent range and for a company which did a gross margin of 50 percent in 2009 and 35 percent in 2011— so, gross margin has been on a decline; that's number one."

Related Link: Short Interest In Solar Stocks Continues To Dwindle

He continued, "Number two: based on the pipeline of projects the company has reported, we think the revenues will be flattish. So, if we put those things together, we get an earnings estimate which is $1.37, whereas the consensus numbers are [a] big range from $2 to $5. So, I mean the big range in consensus tells you there's a misunderstanding on the company's earning power and that's what we are trying to point at, that there may be a disappointment in terms of earnings in 2016."

More Visibility Needed

Sanganeria was asked what changes he needs to see before he can upgrade the stock. He replied, "I think the key thing is that we need to understand where the real earning power is. So, we have to get comfort[able] around that and what is the right valuation and the stock has to come in – that has to happen.

"I mean, right now as you can tell from consensus estimates that we really don't know where exactly that company's core earning power is. And so, we need to get more visibility, more clarity from the company. They have to come out and say these are the right numbers," Sanganeria concluded.

Image Credit: Public Domain


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Posted-In: CNBC Mahesh Sanganeria RBC Capital VetrAnalyst Color Media Best of Benzinga

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