Analyst Brightens Prospect On First Solar For First Time Since 2010

After remaining either on the sidelines or bearish on First Solar, Inc. (NASDAQ: FSLR) for about a decade, an analyst at Raymond James deemed it fit to shift to the bullish camp.

The First Solar Analyst

Analyst Pavel Molchanov upgraded First Solar from Market Perform to Outperform, with a price target of $65.

The First Solar Thesis

Investor sentiment toward clean tech has turned the best in more than a decade, as reflected by the ECO index's 58% jump in 2019 and an incremental 27% year-to-date, Molchanov said in a Monday note. However, First Solar shares have not participated in this euphoria, given the mere 10% rally in the year-to-date period, which has offset the gain made in 2019.

PV module manufacturing, both crystalline and thin film, is a fundamentally commoditized business, with module pricing continuing to tick down, Molchanov noted. However, First Solar, though part of the commoditized industry, is large-scale, cost-competitive and highly bankable.

"First Solar is the only U.S.-based module supplier in the global top ten, and it is also the only one without direct Chinese exposure - needless to say, politically advantageous these days," the analyst wrote in the note.

First Solar's 2020 gross margin guidance of 26-27%, according to the analyst, puts the company in the industry's top quartile. The analyst also noted capital spending has peaked and the balance sheet remains exceptionally cash-rick, making buyback a free option.

First Solar, according to Raymond James, is "one of the few remaining value ideas - arguably, deep value - in clean tech."

"Yes, this is undeniably a commoditized business, and quarterly results have a tendency to be lumpy, but with the stock at 5x 2021E EBITDA - also a modest 6.5x based on 2020 guidance - we think risk/reward is nicely tilted to the upside," Molchanov wrote.

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