First Solar Stock To Drop To $70?

FSLR: First Solar logo
First Solar

Up around 2.5x from its low in March 2020, we believe First Solar stock (NASDAQ: FSLR) could see significant downside. First Solar stock is up almost 50% since the start of 2020. Further, it traded at $57 in February 2020 – just before the outbreak of coronavirus – and is currently 45% above that level, as well. Further, with solar module and system demand still not back up to pre-Covid levels, demand for the company’s products will remain low in the near to medium term, and the stock has the potential to drop around 15% to $70. Our conclusion is based on our comparative analysis of First Solar stock performance during the current crisis with that during the 2008 recession in our interactive dashboard.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 78% from the lows seen on Mar 23, 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
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In contrast, here is how FSLR stock and the broader market fared during the 2007-08 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

FSLR and S&P 500 Performance Over 2007-08 Financial Crisis

We see FSLR stock declined from levels of around $127 in October 2007 (pre-crisis peak) to levels of around $106 in March 2009 (as the markets bottomed out), implying FSLR stock lost 16% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of $135 in early 2010, rising by 27% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

FSLR Fundamentals Over Recent Years

FSLR revenues decreased from $2.9 billion in 2017 to $2.7 billion in 2020, due to dropping ASPs. Despite lower revenue, earnings rose from -$1.59 in 2017 to $3.76 in 2020, as R&D advancements led to a drop in cost of goods sold.

Does FSLR Have Enough Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

First Solar’s total debt stands at $280 million currently, down from $472 million in FY 2019. However, First Solar’s total cash stands at $1.7 billion, and despite a negligible cash flow from operations, the company is in a decent position to cover its debt obligations and ride out the current crisis.


Phases of Covid-19 Crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Despite the number of new Covid-19 cases in the U.S. gradually dropping, we see demand for solar modules and systems struggling to return to pre-Covid levels anytime soon. This is evident from First Solar’s full-year 2020 results, where revenues dropped from $3 billion in FY 2019 to $2.7 billion in FY 2020. EPS jumped from -$1.09 to $3.76 over this period, but that was largely due to a huge litigation loss of $363 million in FY 2019. We believe that with demand growth to stay low in the near term, First Solar stock could see some potential downside, dropping around 15% to $70.

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