Why We Increased Our Price Estimate For First Solar

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First Solar

We have increased our price estimate for First Solar (NASDAQ:FSLR) from $49 per share to about $58 per share, which is about 5% ahead of the current market price. Our price revision is driven by the growth in the broader global solar market, as well as company-specific factors such as the ongoing technology transition to the new Series 6 modules and potential trade barriers on rival silicon-based solar panels in the U.S. market.

See Our Complete Analysis For Solar Stocks First Solar and  SunPower

Series 6 Transition Could Give First Solar A Long-Term Edge

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First Solar is in the process of transitioning its production from the Series 4 modules, which have a peak rated power of roughly 120 watts (W) per module, to the next generation Series 6 modules which will be rated at upwards of 420 W per panel. This will help the company address its long-standing peak power handicap (typical silicon panels had rated capacity that was almost 3x First’s Solar’s Series 4), while potentially allowing customers to cut their balance of systems costs. The panels will also have conversion efficiencies of over 18% when they launch in mid-2018. We could see stronger efficiencies in the long run, as First Solar’s Cd-Te technology has a higher theoretical upper limit for conversion efficiencies compared to silicon-based panels, and the company does have a good track record of translating its record cell and record module efficiencies into production. First Solar also expects Series 6 production costs to decline by as much as 40% below the company’s current generation Series 4 modules, enhancing margins in the long run. The company expects Series 6 production to commence at its Ohio unit in Q2 2018, with total capacity ramping up to over 3 GW by 2019. (related: How Is First Solar’s Series 6 Transition Progressing?)

Section 201 Related Tariffs Could Benefit First Solar

The Section 201 litigation seeks to impose penalties on imported silicon-based panels in the U.S., and could prove to be a net positive for First Solar as it manufactures panels using cadmium-telluride technology, which is not a target of the trade case. In September, the U.S. International Trade Commission (ITC) issued a preliminary ruling stating that these imports were hurting American manufacturers, effectively allowing the Trump Administration to make a final call on the case. While the ITC has made its recommendations for tariffs, which have come in lower than expected at between 0% on cell imports up to 1 gigawatt, to a 35% tariff on solar modules, First Solar will nevertheless be a net beneficiary, as its panels won’t see an increase in their landed costs.  The company booked close to 4.5 GW (about two years worth of production) over the third quarter alone, as project developers in the United States looked to hedge their module costs (related: How First Solar And SunPower Could Be Impacted By The U.S. ITC Ruling). 

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