Shares of First Solar (FSLR) are under pressure on Monday after Bank of America analyst Julien Dumoulin-Smith double downgraded the stock to Underperform citing the lower than expected 2020 guidance as well as the announced strategic review of the Systems business. Meanwhile, his peer at Raymond James upgraded First Solar to Outperform, calling it a "rare value idea" in clean energy.
BUY FIRST SOLAR: In a research note to investors on Monday, Raymond James analyst Pavel Molchanov upgraded First Solar to Outperform from Market Perform with a $65 price target. The analyst noted that this is the first time since 2010 that he is turning positive on First Solar, highlighting that the backdrop is the best all-around investor sentiment on clean tech in more than a decade. Calling it a "rare value idea," Molchanov argued that First Solar is one of the few remaining value ideas in clean tech, and thinks risk/reward is nicely tilted to the upside despite acknowledging that it is “undeniably” a commoditized business with quarterly results having a tendency to be "lumpy."
First Solar is the only U.S.-based module supplier in the global top ten, and it is also the only one without direct Chinese exposure, which is "needless to say, politically advantageous these days," the analyst contended. Additionally, Molchanov pointed out that capital spending has peaked, and the balance sheet remains exceptionally cash-rich, making share buybacks a free option.
SELL FIRST SOLAR: Turning bearish on the stock, Bank of America analyst Julien Dumoulin-Smith double downgraded First Solar to Underperform from Buy and lowered his price target for the shares to $54 from $64. Following the company's "execution hurdles" in fiscal 2019, the analyst sees First Solar's lower than expected fiscal 2020 guidance and announced strategic review of the Systems business as underscoring a "materially lower profile" at the Systems unit. Further, Dumoulin-Smith's channel checks with developers point to an increasing competitive development landscape with compressed margins and reduced risk adjusted returns.
Overall, the analyst said the substantially reduced Systems profile more than offsets the positive modules trajectory the company laid out. He sees a negative skew to his estimates, particularly around further System volume shifts to modules on early sales.
PRICE TARGET CUT: On Friday, Roth Capital analyst Philip Shen lowered his price target for First Solar to $65 from $75 following a fourth quarter miss "across-the-board" and weak fiscal year 2020 guidance from the company. The analyst noted that management also announced the potential of selling off its project development business, which he said "could throw a wrinkle" into the 2020 guidance. However, Shen kept a Buy rating on the shares due to the company's leadership position in cadmium telluride, or CdTe, technology.
PRICE ACTION: In Monday morning trading, shares of First Solar have dropped about 2.7% to $49.24 amid a broader market selloff.
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First Solar
-1.295 (-2.56%)