Why We Reduced Our Price Estimate For First Solar

We are reducing our price estimate for First Solar (NASDAQ:FSLR) by about 6% to about $65, amid a potential oversupply of panels in the solar market and also due to some near-term concerns relating to the company’s U.S. solar projects business. Below we take a look at some of the factors impacting the revision.

• While the solar industry has seen a few years of relative supply-demand balance, there’s an increasing possibility that supply will outstrip demand in the near term.  Manufacturers announced capacity expansions (cell, module and thin film) to the tune of 49 GW in Q4’15 and Q1’16, according to PV Tech, marking an increase of around 200% over the prior year period. This could potentially hurt panel ASPs, impacting First Solar’s revenues and margins in the near-term.

• There are concerns relating to First Solar’s systems business as well. The Obama Administration’s Clean Power Plan, which aims to cut carbon emissions from the power sector, has been stayed in the federal courts and this could create some uncertainty in the outlook for contracting activity for renewable energy projects in the U.S. While First Solar has a reasonably strong project portfolio (4 GW including module-only sales) with a good deal of mid-to late stage booking opportunities, there is possibility that this could hurt the firm’s longer term visibility in the lucrative U.S. market.

That said, we still remain bullish on First Solar, with our price estimate representing a 35% premium over the current market price, owing to the company’s growing technological advantages, falling costs and a reasonably strong base of potential booking opportunities.

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