Before the Move: Watch First Solar, others ahead of ITC decision

With an ITC Section 201 decision expected tomorrow, JPMorgan analyst Paul Coster commented on potential outcomes, pointing out that solar stocks seem to already price in a tariff on imports and that he prefers First Solar (FSLR) since the company's thin-film panels are not subject to the trade petition. Meanwhile, his peer at Deutsche Bank argued that First Solar shares can hit $110 if ITC finds "injury." ITC SECTION 201 DECISION: Back in April, the U.S.-based solar manufacturer Suniva filed a petition for global safeguards with the U.S. International Trade Commission, or ITC. Suniva requests the imposition of tariffs on solar cells and the establishment of a minimum price for solar modules imported into the U.S. The petition was filed under Section 201 of the Trade Act of 1974, which authorizes global safeguards investigations, also known as "escape clause" investigations. An initial determination is due by September 22. INJURY DETERMINATION: JPMorgan's Coster told investors this morning that he believes a determination of "injury" from the ITC would probably get a favorable reception by the U.S. Administration, leading to tariffs on imports. Further, the analyst pointed out that solar stocks already seem to price in a tariff, albeit of a magnitude that is not crippling to the China-based suppliers. The relevant solar stocks, therefore, could move significantly if no injury is found, or if injury is found and the penalty is more than 10c/watt, he contended. While he reiterated a Neutral rating on Canadian Solar (CSIQ), First Solar, and SunPower (SPWR), Coster said he prefers First Solar heading into the ITC decision since its thin-film panels are not subject to the trade petition. In a research note of his own, Deutsche Bank analyst Vishal Shah told investors that he sees upside in First Solar shares to $110 if the ITC finds injury. In the bull case where ITC finds injury and tariffs make standard multi-module prices stay at mid-40c and c-Si module prices also remain high, the analyst said he expects First Solar to extend an incremental 1GW S4 in 2018 and 2019, making shipments 3GW and 4.5GW, respectively. In this scenario, Shah sees 2018 earnings per share approaching $3 and 2019 earnings per share approaching $5. In the bear case, with no injury finding, for 2018, he assumes the company does not extend incremental 1GW S4 capacity and shipments decrease from his current model of 2.5GW to 2GW, while component margins remain weak at low teens in the first half of 2018. The analyst reiterated a Buy rating and $65 price target on First Solar's shares. OF NOTE: Also of note in the solar space today, Axiom analyst Gordon Johnson started JinkoSolar (JKS) with a Sell rating and $10 price target. In a research note titled "Earnings "Valentine's Day Massacre" Appears Set to Unfold Imminently," the analyst argues that consensus estimates are ignoring the "sizable risks" to JinkoSolar's earnings in the second half of 2017 and 2018. Johnson sees an "imminent earnings cliff" for legacy PV module vendors with manufacturing origins in China. PRICE ACTION: In morning trading, shares of First Solar have dropped 2% to $47.87, while Canadian Solar's stock has slipped fractionally to $15.96. Shares of SunPower also slid over 4% to $7.53 and Jinko is off its earlier lows to be back to nearly flat for the day. "Before the Move" is The Fly's recurring series of exclusive stories that identify potentially market moving events, along with analyst predictions, ahead of the news.