Wednesday, May 26, 2010

"Taking a Shine to First Solar " (FSLR)

FSLR is changing hands at $114.52, up $1.90, in pre-market trade.
The stock could trade up to the simple moving average ($124 or so) before bumping into serious resistance.
Auriga's Mark Bachman is one of the better solar analysts. When he came out with some changes a couple days ago we focused on the Trina call but the FSLR "buy" is also worthy of note.
From Barron's Hot Research:

Auriga upgraded the solar firm to Buy from Hold.

First Solar (FSLR: Nasdaq)
By Auriga ($113.95, May 24, 2010)

WE ARE UPGRADING SHARES of First Solar (ticker: FSLR) to Buy from Hold.

The recent selloff has created an attractive entry point, and even with our reduced estimates, we forecast 21% upside to our current price target of $138. We attribute the recent decline in share price to the depreciation of the euro relative to the dollar, and not because of fundamental change with regard to supply/demand within the solar industry. With the recent announcement of First Solar pushing project business into 2011, our model recognizes that more module sales will be denominated in euros in 2010.

[First Solar cht]

That said, we also recognize and credit First Solar's aggressive currency hedging activities and about 15% natural hedge from manufacturing in Germany to buffer the effect of a weakened Euro. Our new price target of $138 is 20 times our 2011 earnings-per-share estimate of $6.89. Our old price target of $147 was 19 times our prior 2011 EPS of $7.74.

In our recent initiation report, we highlighted that First Solar's business model is highly sensitive to the euro/dollar exchange rate. We recognize that the rapid depreciation of the euro will limit profitability despite the company's hedging efforts. The recent strategy shift to sell more modules in 2010, rather than projects, will likely result in roughly 85% euro denominated revenues compared to the 66% that we originally estimated. We are now modeling a euro/dollar exchange rate of 1.25 for both second-half 2010 and 2011, and are providing a sensitivity analysis to 1.15. Our previous model assumed a 1.35 exchange rate.

In addition to the lower euro/dollar exchange rate, we made one material change to 2011. With the push-out of the project business into next year, we have increased our dollar-denominated revenue to 30%; this change slightly offsets some of the effect of the weaker euro. We note that First Solar has hedged out 52% of its 2010 euro-denominated sales at a rate of 1.39.

-- Mark W. Bachman

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