First Solar (FSLR) Thinks Excess Inventory at Agua Caliente Project Immaterial

August 31, 2012 2:21 PM EDT
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Price: $33.66 -3.14%

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    12 Buy, 28 Hold, 9 Sell

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Analysts at J.P Morgan issued a report today and in it they commented on yesterday’s news that First Solar (Nasdaq: FSLR) halted deliveries of modules to the Agua Caliente power plant because construction is ahead of schedule. Yesterday's story pointed out that excess inventory of modules onsite may not be installed until the beginning of next year. Furthermore, the news raises concerns that First Solar plants have been operating at artificially high levels.

While admitting that details remain sketchy, JMP Morgan analyst Christopher Blansett said, “we received an indication from First Solar that they view the amount of inventory at the site as immaterial.”

Blansett also said that “the potential that fear amongst investors may be escalated without a press release or official comment clarifying the situation and, as a result, potential for further stock price downside.”

With a longer term view, Blansett said “We still remain bearish on First Solar’s longer-term prospects. In our view, projects such as Agua Caliente are very profitable for First Solar given the high offtake pricing due to the timeframe in which the project PPA was signed. As projects of the same era as Agua are burned off, we expect margins to decline as newer projects are unlikely to have such favorable PPA agreements. Furthermore, though First Solar has de-emphasized third-party module sales outside of strategic interests, margins in that segment are also expected to remain very low. First Solar has touted markets such as India and the Middle East as areas of future growth. However, we think these markets may take longer to develop than many expect, and in the midterm horizon don’t see First Solar participating in a meaningful way in China and Japan, which are expected to be sizeable markets for the remainder of 2012 and 2013.”

JP Morgan has an Underweight rating on First Solar with a $14 price target.

For an analyst ratings summary and ratings history on First Solar click here. For more ratings news on First Solar click here.

Shares of First Solar closed at $19.67 yesterday.

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