First Solar Stock Still Wildly Overvalued

In a note released this morning, FBR Capital Research lowered its First Solar (FSLR) price target from $110 to $100 due to “continued decline in silicon based module prices” coupled with “uncertainties associated with the changes in the business model.”

The decline in the price of silicon is putting pressure on First Solar’s module prices, as detailed in a recent Barron’s article.The price of silicon is below $100 kilo, down from $450 a year ago. If it slides below $50, silicon based modules become cheaper than First Solar’s modules.

First Solar’s thin-film panels made of cadmium telluride are the cheapest in the solar business, but they are less efficient than silicon based panels. According to Barron’s silicon panels from SunPower (SPWRA) convert about 20% of the sun’s energy compared to 11% converted by First Solar’s panels. When those panels are comparatively cheap, it’s not a problem. However, the slipping price of silicon creates a more competitive environment for First Solar.

The other problem from FBR’s perspective is that First Solar could end up the sole owner of a project it began in Germany. On its Q1 earning call, First Solar announced that it would co-finance a $200 million solar project in Germany. While First Solar says it will sell the project, FBR warns in this environment, “uncertainties associated with the timing of such transactions are a source of risk that needs to be discounted. FSLR could end up owning the project upon completion and electricity generation (until sold).” Selling electricity is not First Solar’s business.

One other reason for concern/speculation from FBR, last week’s shelf filing indicated the company may build another manufacturing facility or expand equity investments in projects, which is more risky. While “manufacturing can be scaled,” FBR cautions that “turning the modules into systems is mostly “variable” cost since the majority of the cost is materials (cabling, aluminium) and labour.”

Until it has a better grasp of what First Solar plans to do, FBR remains conservative with its price tag.

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