Analyst Upgrades First Solar On Valuation

Shares of First Solar Inc. FSLR have fallen roughly 35 percent since May. That sell-off accelerated this week after the company cut sales guidance following earnings data.

The Analyst

JMP analyst Joseph Osha upgraded First Solar from Market Underperform to Market Perform and did not assign a price target.

The Thesis

First Solar continues to execute well and will likely respond well in the near term from declining prices, according to Osha. The company, however, may not be able to survive high pricing through 2020. Additionally, the company’s slight business changes are not substantial.

“The company is still on track to achieve manufacturing volume crossover between Series 6 and Series 4 exiting 2018, and we see no reason to change our previous Series 6 manufacturing assumptions for 2019 and 2020,” Osha said in a note.

Because First Solar leads the industry with $2.3 billion in net cash, the company’s 2018 forecast between $2 billion and $2.2 billion should be feasible, according to Osha. Based on his note, the main investment question surrounds the right multiple.

“The question for investors is a simple one – what multiple of earnings is reasonable in a situation where margins are likely to decline significantly once the existing profitable backlog of business has been worked through?”

Price Action

First Solar shares were down 4.7 percent to $41.53 at time of publication.

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