First Solar (FSLR): Ticonderoga cuts to Sell with $40 Price Target

Ticonderoga’s Paul Leming is making a very negative call on First Solar (NASDAQ:FSLR) downgrading the Solar leader to SELL from NEUTRAL with a $40 price target (prev. $117)

According to the analyst there will be acceleration into the downside in both pricing and volume expectations for the PV industry.


No Year-End Rally In Germany – Phoenix Solar yesterday announced sharply lower revenue expectations for 2011 and stated bluntly in their press release that “the hitherto expected year-end rally [in installations in Germany] does not appear to be materializing.” Germany remains the single largest market in the world for PV – the lack of a fourth quarter surge in installations and the growing support for still further reductions in subsidies in Germany is devastating news for the PV industry in general and FSLR, in particular. Volume assumptions for 2012 are increasingly at risk.

Pricing Declines Accelerating – Pricing throughout PV value chain appears to be accelerating to the downside; consistent with: 1) Disappointing Q4 volumes; 2) Massive overcapacity throughout the value chain and 3) The reality that still weaker volumes in the seasonally soft first half of the year (2012) will soon become a reality in the industry. Thin-film module prices are now at or below 90 cents/watt – a level at which FSLR’s module manufacturing is (at best) break-even after operating expenses (SG&A and R&D).

FSLR’s Module Business Heading Into The Red – With the increasing likelihood that polysilicon contract prices will break $30/kg over the next nine months, we believe the most likely scenario for FSLR’s earnings in 2012 is for their module business to lose money. The company’s absurd segment reporting format (which has their downstream project business exactly break-even each an every quarter) completely hides from investors (and the IRS) where the company really makes its money. Transferring modules into their projects at realistic market prices would show a highly profitable project business (with the backlog of attractive projects largely flowing through the income statement by the end of 2012) and a – today – barely profitable module business.

Our 12-month price target of $40 per share is based on the company’s shares trading at 10X its $4 of earnings power in 2013.

Notablecalls: This is the Street low target for FSLR. The chart looks like death. The call reads like death. This appears to be going lower.

I’m thinking $51-$52 in the n-t.

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