The Street is expecting upside in Q2 from First Solar (FSLR) (reporting July 30th, after close), but leave it to Citi to expect even more. After all, FSLR won’t hit Citi’s $450 price target through garden-variety outperformance:
While the Street is broadly expecting a beat, we think FSLR should deliver enough EPS upside even in spite of what are apt to be lower margins out of the gate given initial under-absorption from the aggressive ramp in Malaysia. Going forward, we think Street models should pull in by nearly a full Q as FSLR is likely to raise full-year shipment guidance and margins should have alot of leverage in 2H:08 as startup costs in Malaysia are fully absorbed with the impact of starting up additional lines more than offset by much lower production costs at a full KLM 1 [first Malaysian plant].
Citi’s Key Issues:
- Outlook and timing of Malaysia ramp beyond KLM 1
- magnitude of near-term margin pressure due to Malaysia where historical precedent would suggest higher cost/W in early stages of ramp
- outlook on demand from U.S. utility mkt where FSLR in pole position to capture what should be at least 100MW of incremental demand by YE10 largely independent of pending ITC [Investment Tax Credit] legislation
Citi reiterates BUY on First Solar (FSLR), target $450.
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