North Coast Solar Stocks

June 24, 2009

First Solar: Losing Pricing Edge Over Silicon-Based Rivals?

Filed under: FSLR, WFR — Tags: , , , , , , — Jason @ 11:15 am

Posted by Eric Savitz

With polysilicon prices collapsing, 2009 might be as good as it gets for First Solar (FSLR), which makes solar systems based on cadmium telluride rather than silicon. First Solar has historically enjoyed a big price advantage over silicon-based competitors. But that gap has at least narrowed, and may have closed.

Kaufman Bros. analyst Theodore O’Neill this morning repeated his Sell rating on the stock, while maintaining his $86 price target, dramatically below yesterday’s close at $164.42. (And the stock has moved even higher today,) But he contends the Street isn’t doing the math.

“Excess inventory and expensive credit are crimping sales and installations of solar modules worldwide,” he wrote in a note this morning. “Reports of silicon modules at par with installed FSLR modules have been growing for months and reflect over-supply in the solar sector. Last month, FSLR may have been unable to meet its sales targets without offering more attractive terms, essentially financing its own customers.” He adds that polysilicon prices “resist rising” and at current levels make silicon solar cells “far more attractive than they have ever been.” Echoing a point J.P. Morgan made this morning in its bearish call on MEMC Electronic Materials (WFR), O’Neill says polysilicon supply to the solar market is expected to grow 50% at 2010.

He notes that poly prices are now so low that some of the world’s largest chip companies are moving into the solar products market, including, Samsung, LG and Taiwan Semiconductor (TSM).

O’Neill notes that consensus estimates call for FSLR to grow revenue 35% in 2010, 36% in 2011 and 39% in 2012. Given the price declines already seen in 2009, he notes, FSLR would have to see more than 60% volume growth in 2010. He doesn’t buy it: O’Neill sees 2010 revenues of about $2 billion, up about 11% from estimated 2009 revenue of $1.79 billion. He sees EPS of $6.06 this year and $5.27 in 2010; that puts him at odds with the Street consensus of $7.21 this year and $8.76 next year.

Despite the bearish stance, FSLR today is up $8.68, or 5.3%, to $173.10.

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