First Solar, Inc. (FSLR)
2012 Guidance Below Street; A Takeout Looks More Likely
14 December 2011 ¦ 12 pages
citigroupgeo.com
What happened — ’12 EPS guided to ~$4.00 (mid-pt), below our $5.32 and far below
Street ~$7.00. Note EPS doesn’t include ~$1.00/share net cash receipts from Desert
Sunlight where GAAP revenue recognition is deferred – thus, “apples to apples” guide
was ~$5.00 (mid-pt), or about in-line w/our model. It also neg-pre’d CQ4:11 EPS due to
~125-150MW slippage in the utility pipeline. Adjusting for this, allocation to the utility
pipeline in ‘12 seems okay if not a bit better than prior comments.
Our take — To us, EPS seems a bit couched given the volume assumptions as it
appears to embed merchant module pricing of $0.60-0.70/W and systems ASP of
~$3.20-3.30/W – reasonable, but relatively conservative. It will remain very challenging
to make much money pricing at $0.60/W – a level required to keep moving product
against c-Si at $0.80/W as realized poly prices head to $25/kg. This is true even if you
believe new cost targets of ~$0.52/W by 2015. Thus, it all depends on its ability to
capture incremental revenue/margin by adding to the utility pipeline. We have modeled
~500MW/yr in gross pipeline adds but this will be challenging near-term as many US
utilities are over-provisioned and plants are operating above planned capacity factors.
The end game — We see two likely outcomes: 1) FSLR is taken private (given the
massive lumpiness, up front capital requirements), or 2) it finds a rich parent (i.e, GE?
Samsung? for technology differentiation). Barring this, it is apt to remain challenging.
Module biz assigned zero value at this price — We are slightly raising our C2011 EPS
from $5.32 to $5.61 (this including net receipts from Sunlight) but 2013 cut from $6.75
to $3.62 as less systems remains for '13. W/stock $34 currently, this is about what we
think the NPV of the pipeline is worth meaning mkt now finally assigning zero valuation
for the "core" module business. This is the case in the next year or two, but poly can
not remain at $25/kg forever. Also, upside in the stock could come from a potential
takeout as highlighted above. Our $60 target remains unchanged but we now see the
pipeline worth more ($35/share) and the module business worth less ($25/share). |
