Monday, January 5, 2009

First Solar (FSLR)

First Solar (FSLR) epitomizes the kind of returns that make investors Green with envy. After a gain of more than 790% in 2007, many investors wrote off FSLR as overvalued, yet both short and long, FSLR continues to distinguish itself as a lucrative investment.

In 2008, the majority of FSLR's losses began in late August, with shares plunging more than 59% after August 21. Late last year, FSLR led solar stock with a 20% rally for the week of December 15-19 and like the rest of The Green Market's solar picks, FSLR has been going strong since the start of the new year. The last week in December, solar was down, almost across the board. Then as predicted by The Green Market, solar stock began to soar. Since the beginning of the year, The Green Market's solar picks have advanced at a tremendous rate led by Evergreen at almost 27%. Monday saw SunPower add another 9% and Canadian Solar added another 8% to the 8% advance it saw last week. FSLR continues to lead, growing 16% over the last 6 trading days.

FSLR has innovated the least expensive solar panels on the market, although the more common crystalline silicon panels are more efficient than FSLR's cadmium tellurium thin film panels. First Solar was founded in 1999 and has its headquarters in Tempe, Arizona. It has a market cap of 9.53 billion. It competes with Evergreen Solar and SunPower. First Solar's CEO is Michael Ahearn and their CFO is Jens Meyerhoff. It reported a TTM revenue of $1.01 billion.

First Solar's customers are largely in Germany, France and Spain. All three countries have feed-in tariff policies, which require utilities to pay government-set rates for all solar energy produced in the country. The solar electricity rates are higher than the prices for conventional power, making solar energy development a lucrative business. The feed-in tariffs have made Germany and Spain the top two solar markets worldwide.

In a December 12 article, Ucilia Wang, worried that First Solar's thin-film panels might be piling up in European warehouses. "A ThinkEquity research note estimated that six key First Solar customers aren't able to install the solar panels quick enough. Those customers might have an even tougher time doing so in 2009, when First Solar is due to ship even more panels to them than it did in 2008."

"Based on the aggregated intelligence of 120,000-plus investors participating in Motley Fool CAPS, solar, First Solar received a distressing ranking [in December]. One of those who believe FSLR will underperform the S&P 500, noted that the First Solar bear case all boiled down to valuation: 'While there has already been a big correction in the price, a few more years of growth at the expected levels are needed to justify current levels.' Another commentator said 'First Solar is a classic good business-bad stock situation.' According to him, 'First Solar is good company, and they make the least expensive panels, but because they are not generating positive free cash flow, they should be considered overpriced.'"

According to a mid-December article in Forbes "this [bullish] sentiment has shown signs of deterioration recently" and may be a hint "that pessimism could be taking hold of FSLR." According to the same article "short-sellers are also increasing their bearish bets on the security. During the most recent reporting period, the number of FSLR shares sold short ballooned by more than 31% to account for 14.3% of the stock's total float. Should this trend continue, it could increase selling pressure on the security, thus perpetuating its weak price action. Wall Street analysts have yet to reassess their bullish positions, however. Currently, 13 of the 21 brokerage firms following FSLR still rate the shares a "buy" or better, according to Meanwhile, Thomson Financial reports that the average 12-month price target for the stock rests at $176.72 per share - a premium of more than 50% to the stock's December 11 close at $117.57 per share. This configuration increases the chances of downgrades or price-target cuts, which could provide additional selling pressure for FSLR."

To date, FSLR continues to defy the wisdom of the pundits. Even if oversupply proves to be an issue it may effect crystalline silicon panel makers more than First Solar. According to Travis Bradford, president of the Prometheus Institute, which tracks the solar market: "It says a lot more about crystalline silicon module pricing than First Solar's value offerings. If the best-value product is piling up, then it's really bad news for the less-valued products." There may be some adjustments in the medium term, but FSLR is an industry leader in a promising sector. Their inexpensive thin panel has made First Solar a prominent player in the solar energy sector.

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