Goldman Sachs Sees 50% Upside in First Solar (FSLR) and Raises Rating to Buy

(Updated - January 5, 2016 8:34 AM EST)

Goldman Sachs upgraded First Solar (NASDAQ: FSLR) from Neutral to Buy with a price target of $100, suggesting upside of 50%. Analyst Brian Lee noted First Solar's best in class balance sheet, and he sees the company as a beneficiary of California's decision to raise its renewable mandate and extension of the federal ITC.

"In particular, we note FSLR is a key beneficiary of CA’s decision to raise its renewable mandate to 50%, while the extension of the 30% federal ITC for solar in the US – where FSLR has significant leverage – does not appear to be appreciated in either estimates or the stock vs. peers. Coupled with a growing international pipeline, we see these factors driving significant upside to consensus EPS views, with potential for capacity expansion adding another catalyst and unexpected EPS power," said Lee.

Lee continued, "No developer has more offensive firepower than FSLR heading into the next several years, in our view. With a balance sheet boasting $15/shr of net cash (and growing to $25/shr+ by 2017E), we believe FSLR is positioned to navigate more selective financing markets and maintain a relatively low cost of capital – while at the same time providing financial flexibility to fund projects off its balance sheet or be opportunistic via M&A to add to pipeline/backlog. Additionally, we expect capacity adds to likely grow volume potential into 2017."

The analyst added, "Despite several recent quarterly earnings beats and improved medium-term visibility, 2017 consensus EPS appears to have downticked recently and is in line with expectations from earlier this year. We see roughly 40% upside to F2017 consensus EPS, with key drivers of potential upside including:

• California’s 50% RPS: FSLR owns ~40% market share historically in CA
• Extension of the 30% ITC : 90% of FSLR’s sales exposure is in the US
• Capacity expansion: We estimate $1.25-$1.50 of incremental EPS for each 1GW
• International traction: Bookings opportunities up to 13GW vs. 4GW just two years ago"

Goldman sees 2016 and 2017 EPS of $4.20 and $4.16, respectively.

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 $66.72 yesterday.

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