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First Solar Could Be Profitable By Next Year, But That May Not Satisfy Investors

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First Solar Could Be Profitable By Next Year, But That May Not Satisfy Investors

Shares of First Solar, Inc. (NASDAQ: FSLR) plummeted more than 17 percent to a new 52-week low of $32.90 on Thursday after the company reported third quarter earnings results.

Joseph Osha of JMP Securities maintained a Market Underperform rating on First Solar's stock with an unchanged $32 price target.

Osha noted that First Solar did beat consensus estimates, but this was due to non-operating factors that weren't reflected in consensus expectations. In addition, the company's revenue fell short of what analysts were expecting and management's commentary suggests it will take "aggressive steps" to reposition its cost structure in a tough pricing environment.

In fact, the analyst believes that First Solar's initiatives could make the company profitable next year yet consensus estimates for next year are "significantly too high."

Looking forward, Osha believes the most important question is what is the company's sustainable level of earnings?

"As the company finishes working through the sale of legacy projects, we expect earnings power by 2Q17 to reasonably reflect the operating environment," Osha expanded. "To First Solar's credit, the company has both the product roadmap and the financial resources to react, and we think profitability will recover in 2018. Even so, we believe the company will be hard-pressed to manage gross margin of more than 17-18% next year, on revenue of less than $3 billion."

Bottom line, First Solar is in fact a well-run company operating in a tough environment, but the Street's expectations are just too high.

The analyst's $32 price target is based on a 4x multiple of his 2017 free cash flow and EV/EBITDA.

Latest Ratings for FSLR

DateFirmActionFromTo
Aug 2020B of A SecuritiesMaintainsBuy
Aug 2020B of A SecuritiesUpgradesNeutralBuy
Aug 2020Raymond JamesMaintainsOutperform

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