FirstSolar's (FSLR) Trough Year Likely 2017; Cutting PT - Stifel

Stifel analyst, Sven Eenmaa, noted that First Solar (NASDAQ: FSLR) did not provide specific guidance for 2017 at its analyst event, deciding to wait until December, with management citing uncertainties from ITC extension impact on project timing. No change to Buy rating but cutting PT to $85 from $90.

Capacity expansion commentary was tentative, citing peer expansion, as well as focus on Series 5 acceptance and further Series 6 development, although a scenario whereby Series 5 would take capacity to above 4GW by FY18 and Series 6 to nearly 7GW by 2020 was outlined.

No specific cost per watt targets were disclosed but presentation implied core module cost heading toward an impressive below $0.25/ and tracker-based North American full system cost to below $0.80/Wp levels by 2020. First Solar introduced its Series 5 PV module with improved form factor, energy density and costs, and announced plans for Series 6 with further step function in cost and efficiency improvement. Management sees potential to drive ~30% higher gross profits from its already awarded 2017-2020 business benefiting from new products and cost reductions. Incremental contribution margins are expected at attractive low 20s.

Some solar vendors having raised questions on potential industry over-capacity, and still lingering uncertainty around project shifts from 2016 to 2017 post ITC extension, First Solar looks to be proceeding with the measured conservatism they have shown in the past, which may not optimize market share for 2017, however but will assure healthy profitability and continued cash generation. Meanwhile, outlook for North America was positive, with management very comfortable bidding out-year PPAs in $0.04/kWh range while maintaining target margins, and international traction is broadening led by modules. Reflective of guidance timing and monetization of projects such as Luz del Norte post 2017, they are trimming our FY17E EPS from $4.17 to $3.42. They view 2017 as likely a trough year

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 $62.42 yesterday.

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