Deutsche Analysts Wonder If First Solar's Earnings Will Run Out Of Power In 2017

Deutsche Bank remains cautious on the earnings power of First Solar, Inc. FSLR beyond 2016 as its latest channel checks show continued soft fundamentals and pricing pressure in US and international markets.

"[W]e expect margin pressure in 2017/18 timeframe due to aggressive competition from smaller US and international developers as well as Chinese module companies," analyst Vishal Shah wrote in a note.

Shah said he would gain more confidence in the medium-term margin outlook if First Solar can continue to win business in markets with higher profitability (e.g. US, Japan) and get premium pricing in international markets.

Related Link: Morgan Stanley Says Regulatory Environment Will Make 2017 A Challenging Year For Solar Sector

At the end of the first quarter, First Solar had 620MW of projects sold or under contracts and 581MW with executed PPA that can be recognized as revenue in 2016.

But, the potential revenue timing of Luz del Norte, Chile (141MW) and India projects (190MW), which are expected to be completed by 2016, is unclear.

In addition, the analyst believes the series 5 transition is a long-term positive for First Solar given increased energy density, reduced installation and structure costs.

Meanwhile, Shah expects First Solar's second quarter results to be above consensus. The company will announce its second quarter after close on August 3rd. The analyst expects revenue/EPS of $1 billion/$0.82 versus consensus of $863 million/$0.54.

"We expect solid execution on FY16 rev/EPS guidance of $3.8-4B/$4.1-4.5," Shah added.

The analyst said the investor focus will be on the outlook for bookings and margin, project revenue timing and execution on series 5 ramp.

Shah has a Hold rating and $44 price target on the stock.