First Solar upgraded yesterday Aug 2nd at S & P from Neutral to Buy.
Highlights
"We expect sales to rise 140% in 2008, followed
by an 83% gain in 2009.We see most of these
increases coming from a further rise in the volume
of solar modules sold by FSLR, driven
largely by the company's ongoing expansion of
capacity. FSLR's German plants were to be at
full capacity for the full 2008 period, with its first
Malaysian plant starting production as of April
2008, and slated to reach full capacity in the
third quarter; it expected to have all four of the
Malaysian plants it was putting up at full capacity
by the end of 2009. To a lesser extent, we
anticipate production being lifted by improved
module production throughput and higher conversion
efficiencies.
We see net margins widening in both 2008 and
2009, on expected further declines in per-watt
production costs.We also expect margins to be
aided by ongoing improvement in production efficiencies
and economies of scale, as the company's
production base expands.We see these
factors being partly offset by our outlook for
higher plant start-up expenses.
After deriving all but 9% of its sales in Germany
in 2007, FSLR expected a much larger proportion
from other nations in subsequent years.
Investment Rationale/Risk
We expect FSLR to record substantial profit
growth over the next few years, as we believe
that demand will remain strong for alternative
energy sources.We also think it will be a leader
in the area of solar modules made from thin
film technology, which uses far less silicon in
its production process than other solar technologies.
Based on these factors and our valuation
model, we view the shares as undervalued.
Risks to our recommendation and target price
include potential inefficient execution of FSLR's
aggressive capacity expansion plan, and a high
degree of competition.
The stock recently traded at about 41X our 2009
EPS forecast.We believe First Solar merits a
premium valuation, based on our outlook for
very strong EPS growth in coming years and
our view of the company as a leader in bringing
out a solar energy product with lower production
costs.We also view FSLR as an extremely
risky investment in the event of any disappointments.
Yet, with FSLR's forward P/E multiple
only 0.5X our current three-year compound annual
EPS growth forecast, we think a higher
valuation is merited. Our 12-month target price
is $375, or about 54X our 2009 EPS projection." |
