Solar Power Cells, Hot Water, Energy, Collectors

Analyst Actions: First Solar Target Price More Than Halved at Credit Suisse

01.01.70

Systems profitability less than expected; Lowering Estimates and Target Price to $30 (from $62). FSLR shares have hit a year low $30.04 today.

Bottom line, systems profitability less than we expected. "FSLR hosted a special guidance call for 2012 before market hours today. Company guided 2012 GAAP rev/EPS to $3.70-$4.0bb and $3.75-$4.25/sh, below consensus at $4.09bb/$7.42. Key negative was that system margins are lower - lower pricing, higher costs than expected - as a result our pipeline valuation declines from $28/sh to $19/sh. We are revising our TP to $30 from $62 from a SOTP valuation of $25 DCF pipeline valuation and $5 in net cash. There were some positives - operating cash flow will improve, below the line items like opex/start-up costs/taxes were better than our model, and company further lowered its long term cost metrics. We are revising our 2011 EPS from $6.51 to $4.87; 2012 from $8.13 to $4.08; and 2013 from $7.77 to $5.82."

System price variances vs our model. "There had been visible positive data points such as the up to $1.36bb sale of 190MW (AC) AVSR to Exelon and $967mm DOE guarantee for 230MW (AC) Agua Caliente projects that led us to assume ~$3.66/watt system price (DC) in our models for CY12. FSLR has also been vocal in saying its panel and BOS costs are declining - combined, these two will only be ~$1.60/watt including under absorption charges in 2012. FSLR guided to $1.7bb in system revenue and 1.2GW in system completions, well above our model at $1.25bb/866MW. On the cost side, this suggests a "system ASP" (same as cost as system margins are 0) (ex-panel) of $1.65/watt, which was well above our estimate of $1.45/watt (which we thought was reasonably conservative - assuming 87c/watt standard BOS + 25-50c/watt of non-standard costs). FSLR is certainly not assuming a third party channel price less than its cash cost which is probably ~65c/watt, as the company noted a 10% volume reduction in its channel sales would impact EPS by 30c - if panels were sold below cash cost, fewer panel sales would increase profits. Assuming FSLR sets channel prices for the 740MW at 0% GM (~75c/watt) - the implied system price including panels to get to revenue guidance (excluding Desert Sunlight) was only ~$3.25/watt, well below our $3.66/watt estimate. The margin difference of 60c/watt on systems, combined with slightly lower channel panel price assumptions (we were previously at 81c/watt for channel modules) and combined with the previously disclosed revenue push out on Desert Sunlight (we were modeling 100MW of non-GAAP Desert Sunlight revenues, company guided to 175MW of completions) led to the variance in guided EPS vs our estimate.

Source: NASDAQ