Credit Suisse analyst Michael Weinstein also downgraded SunPower to Neutral
Shares of First Solar (FSLR) are under pressure on Monday after Credit Suisse analyst Michael Weinstein downgraded the stock to Underperform, a sell-equivalent rating, on valuation. Meanwhile, his peer at Roth Capital upgraded the shares to Buy ahead of quarterly results as analyst Philip Shen sees two upside catalysts near-term, namely a 201 extension and supply chain reconfiguration given forced labor risk.
BUY FIRST SOLAR: Roth Capital analyst Philip Shen upgraded First Solar to Buy from Neutral with a price target of $100, up from $65, as he argues that policy drivers support greater demand and higher average selling prices, or ASPs. Heading into third quarter results, the analyst sees First Solar serving as a "go-to" company for customers seeking security of supply and reduced reliance on the Chinese supply chain.
Over the past two months, a number of political actions have been taken both by Congress and the President that are likely to benefit First Solar, the analyst contended. First, the House passed the Uyghur Forced Labor Prevention Act, which seeks to block the import of goods from the Xinjiang province in China until companies prove forced labor was not used in production of the goods. Shen believes this could force crystaline silicon competitors to reconfigure supply chains and prove that no forced labor has been used in any step in the production process. Second, a Presidential Proclamation was issued that removed the Section 201 bifacial exclusion and set in motion the process for a Section 201 extension. Over the weekend, the withdrawal of the bifacial 201 exemption was blocked. The analyst notes that the judge did not rule to stop the increase of the last year of the 201 tariff to 18% from 15% or stop the 201 extension process, which he calls "a key upside catalyst" for First Solar.
Overall, Shen sees the recent political developments driving demand and pricing upside for First Solar's modules from customers seeking security of supply and reduced reliance on the Chinese supply chain.
SELL FIRST SOLAR: More bearish on the name, Credit Suisse analyst Michael Weinstein downgraded First Solar to Underperform from Neutral. The analyst noted that First Solar currently trades closer to a prior peak multiple last seen in 2017/2018 before Section 201 tariffs were implemented, and above average historic multiples since of 8 to 10 times for First Solar and peers. While a new set of tariffs are possible, the price currently implies either a 14% Section 201 tariff exemption for First Solar in perpetuity, or about 60% Section 201 tariff for the next four years, even after current tariffs expire in February 2022, Weinstein contended. The analyst believes both scenarios seem "highly unlikely" given the limited history of Section 201 and the supply chain's demonstrated ability to relocate globally in response to anti-dumping and Section 301.
Nevertheless, he gives some credit for a potential tariff extension, raising his price target on the shares to $64 from $54. First Solar's unique CdTe semiconductor technology limits dependence on China’s polysilicon-solar industrial complex, and could potentially emerge as preferred alternative should geopolitical tensions escalate, either in the U.S. or other countries such as India requiring increased domestic solar production, he acknowledged. However, the analyst argued that manufacturers require longer term price/tariff visibility that incentivize new build. President Trump is likely to favor tariff extensions, while Biden’s campaign hasn’t offered any clarity for solar manufacturing, Weinstein added.
WHAT'S NOTABLE: Credit Suisse's Weinstein also downgraded SunPower (SPWR) to Neutral from Outperform with a price target of $16, up from $12. The analyst believes the stock price already implies strong EBITDA recovery through 2022, driven by cost reductions, operating leverage, and lower cost of capital as guided by management at the company's September analyst day. Nonetheless, he acknowledged that EBITDA and costs could benefit from any extension of solar tariffs. Regarding quarterly results, Weinstein expects no surprises from SunPower since third quarter and fourth quarter guidance was last updated in September at the analyst day.
PRICE ACTION: In morning trading, shares of First Solar have dropped about 2% to $83.73.
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