UBS Cuts First Solar (FSLR) to Sell; Sees Further Risk to Expectations
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(Updated - November 18, 2016 8:11 AM EST)
UBS downgraded First Solar (NASDAQ: FSLR) from Neutral to Sell with a price target of $25. The downgrade followed the release of disappointing 2017 guidance. Analyst Julien Dumoulin-Smith sees further risk to expectations in 2018 and beyond.
"We are downgrading our rating after the latest release of 2017 guidance, largely reflecting our concerns that 2018+ does not necessarily improve substantially, and 2019 could be yet another peak year as ITC steps down. With 2017 EPS guidance below expectations at $0-0.50 vs cons at $1-2, and a meaningful improvement expected thereafter, we expect another step-change down. Despite ~$13/sh of balance sheet cash as of 3Q and a $3/sh stake in CAFD, we see the core business as still implying a healthy valuation. Further, our updated margin assumptions bake in healthy systems margins in particular, are not necessarily 'conservative' and we see risk should margins trend lower and/or system opportunities continue to trend below guided volume expectations," said Dumoulin-Smith.
"We see further risk to expectations in 2018+ particularly with legacy margins continuing to roll off into 2018. We caution cash burn likely to continue into 2018 with limited cash generation from system sales, more than offset with continued need to scale capex on full 3GW Series 6 deployment of a further $500 Mn. Cash generation remains quite modest in 2018+ onwards at ~$100 Mn/yr net of est. ongoing capex. We are further cutting our 2017/18/19/20 EPS estimates from $1.61/2.02/2.49/2.73 to $0.36/1.00/2.15/1.59. Our price target is based on an EV/EBITDA-derived SotP valuation," added the analyst.
Shares of First Solar closed at $31.16 yesterday.
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