FBR expects a great Q2 from First Solar (FSLR) (reporting July 30th), but they are worried about FSLR’s ability to cash in on the US market over the next couple years:
We expect FSLR to have another strong report, beating estimates/consensus and providing strong guidance, driven by solid execution in ramping manufacturing capacities, as well as strong demand in Europe. Going forward, we also expect the company to take some market share from the si-based [silicon] competitors in Europe, given its more attractive ASPs/economics. However, for the US$10-plus of earnings that the bulls argue to materialise in the CY10 time frame, the U.S. utility market has to take off, and that is where we have a difference of opinion.
FBR believes the uncertainty of these three factors will force FSLR to tone down its US expectations:
- the timing of the passage of ITC [Investment Tax Credit]
- the U.S. government may or may not consider giving the investment tax credit directly to the utility companies [as opposed to home owners and businesses], which could change the size of the opportunity.
- the U.S. government may or may not consider adopting a European style FIT [Feed-in Tariff, a system in which electricity utilities are obligated to buy renewable electricity at above market rates set by the government] in place of ITC
The firms sees “a short-lived relief rally here in anticipation of strong report/guidance” but encourages profit-taking given “the significant downside risk” to the current CY09/CY10 earning expectations.
FBR maintains UNDERPERFORM on First Solar (FSLR), target price $200.
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