Sell First Solar: UBS Says Cash Burn Will Continue Into 2018

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Following the weak 2017 guidance issued by First Solar, Inc. FSLR, UBS analyst Julien Dumoulin-Smith believes there could be further to the expectations for 2018 and beyond, especially given that legacy margins are likely to continue to roll off into 2018.

Dumoulin-Smith downgraded the rating on the company from Neutral to Sell, while lowering the price target from $45 to $25.

Weak Outlook

“We caution cash burn likely to continue into 2018 with limited cash generation from system sales, more than offset with continued need to scale capex on full 3GW Series 6 deployment of a further $500 Mn,” the analyst mentioned.

Dumoulin-Smith also expects cash generation to remain modest in 2018 and beyond.

First Solar issued EPS guidance for 2017 at $0.00-$0.50, below the consensus expectations, while expected a significant improvement thereafter.

The company also intends to cut 27 percent of its global workforce, while guiding to sales below the consensus forecasts for 2017.

Capex Concerns

“Despite ~$13/sh of balance sheet cash as of 3Q and a $3/sh stake in CAFD, we see the core business as still implying a healthy valuation,” the analyst said.

Despite management claiming a 40 percent decline in costs with the deployment of Full Series 6, Dumoulin-Smith noted that even with the new technology, outsized margins weren't expected.

The company announced on November 16 that it intended to phase out the current solar panels, while expediting the development of the Series 6.

“We emphasize the inflows from legacy PPA projects are funding the capex in 2017, and expect a step-down in cash in 2018 as capex to ramp capacity back up eats into the defensive cash position bolstering the outlook,” the analyst stated.

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Posted In: Analyst ColorShort IdeasDowngradesPrice TargetAnalyst RatingsTrading IdeasJulien Dumoulin-SmithUBS
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