Analyst On First Solar Short-Term Outlook: 'Meh'

The analyst day of First Solar, Inc.

fell short of investor expectations who were expecting the company to provide 2017 guidance as it has in the past. But, it did provide a long-term vision that pacified the Wall Street who still remains concerned on the near-term prospects of the company. Philip Shen of Roth Capital who reiterated his Buy rating and $80 price target on FSLR shares believes management "will likely issue 2017 guidance in December." Avondale Partners analyst Michael Morosi said: "We believe the company is capable of delivering $8+ EPS with a doubling of capacity, 200bps+ of module efficiency improvements, and operating leverage leading to mid-teens OPM. However, we came away with few near-term catalysts and little to contradict our concern that EPS is set to plateau over the next couple years." Morosi has a Market Perform rating and $74 price target on FSLR shares. Morosi said FSLR targets 20GW of booking opportunity for 2016, requiring just a 15 percent conversation rate to achieve a 1:1 book-to-bill ratio. Against the backdrop of about 15 percent annual installation growth, management estimates 27GW of potential annual booking opportunities in '17-'20, the analyst added. Deutsche Bank's Vishal Shah noted: "While we continue to believe FSLR is best positioned to gain share of the U.S. and int'l solar markets and its technology advantage vs major competitors should continue to improve, visibility is likely to remain limited in the near term." Shah noted that net cash balance could continue to decline over the next few years as the company begins to ramp capacity as well as starts the new project development cycle for 2019/20 delivery timeframe. "With limited near term catalysts on the horizon, we expect shares to remain in a trading range and maintain Buy rating based on balance sheet strength as well as prospects of market share gains" added Shah who has a price target of $86 on the stock. Following are the key takeaways of the analyst day as listed out by Shah: 1) FSLR did not provide annual earnings guidance as it has been providing in the past analyst days. 2) The qualitative earnings guidance for 2017/18 "was well below street and our expectations." 3) Most investors were expecting major capacity expansion announcement. While FSLR did provide some details, "we believe investors were likely expecting more near term capacity ramp as opposed to 2019/20 ramp as FSLR guided." 4) Management did provide mid-term efficiency and cost targets - but no specific timeframe which was somewhat disappointing and no specific cost targets like it had provided in the past. 5) Management did suggest that given the increased focus on S6 ramp, there will be a reduction in S4/S5 efficiency improvement in the near term. 6) The company is still evaluating Tetrasun technology with 100MW pilot line up and running although none of the future capacity or cost roadmap include Tetrasun. "We do not expect FSLR to make any progress with this technology." 7) In terms of capacity roadmap, FSLR is being somewhat cautious and not being aggressive to add capacity in the near term. In late 2017, the company expects to deploy 4 lines of series 4 tech and add about 425MW for 4 lines. The company expects to bring additional 4 lines of series 5 manufacturing with full production expected in 2018. Series 6 capacity is unlikely to be available until 2019 at the earliest and the company expects 5GW total capacity in 2019; 6.5-7GW in 2020. 8) In terms of financial metrics, FSLR expects future net cash balance to decrease to $1 billion - $1.5 billion versus 2016 net cash balance of $1.9 billion - $2.2 billion. Finally, the company suggested that it had $1 billion - $1.2 billion of contracted business from 2017 through 2020 and a lot this revenue recognition would be back-end loaded as the company believes it can capture $300 million - $400 million incremental margin through S5, S6, MVDC etc. Shares of First Solar were down 0.22 percent to $62.28.