While the slipping price of polysilicon hasn’t dinged First Solar (FSLR) yet, this could be the week when that all changes, Barron’s reports.
Wednesday is the start of the Intersolar trade show in Munich, where the world’s solar businesses bargain their next contracts. The deals will surely adjust for the plunging price of refined silicon — half the cost of goods at First Solar’s rivals. One leading customer says it will ditch First Solar’s “thin-film” panels if crystalline silicon alternatives keep getting cheaper. That seems likely. Silicon prices are expected to drop another 30% by year end. First Solar profits — and its shares — could get cut in half.
…On May 14, Phoenix Solar, a major customer in Germany, told investors it will switch from First Solar silicon-sparing products if the price of the more efficient crystalline-silicon products falls below 1.60 euros ($2.25) per watt of generating capacity. First Solar panels must sell for about €0.25 per watt less than silicon to offset thin-film’s higher cost of installation.
That’s troubling because Yingli Green Energy (YGE) said its panels cost between €1.60 and €1.70 per watt on an earnings call, and promised that it would be able to lower costs by 15%.
Another pressure point for the First Solar could be the price of oil. Theo O’Neill of Kaufman Brothers, a big time bear on First Solar (he has an $86 price tag) says that First Solar is used as a hedge for energy traders, because of its liquidity. Here’s a few points from a note he put out recently.
- We have done analysis that shows investors who hold First Solar stock may be exposed to oil price risk,whether they are aware of it or not.
- First Solar stock has risen 43% in the last 35 trading days. The AMEX XOI index has risen 37%. The two are highly correlated. Indeed, we ran amulti-variate regression analysis against the XOI and found an 84% r-squared as well as a t-statistic of 51. These two suggest a high degree of correlation.
- Our work shows that the recent run up in FSLR shares is, to some degree, tied to the rise in oil prices and as such this increases the downside risk. Our analysis shows that If oil prices decline, it is likely that FSLR stock could also decline. Investors buying shares at these levels maybe exposing themselves to this oil price risk.
Of course, oil shows few signs of relenting at this point, so this seems like a small concern. The bigger concern is that according to Barron’s “an abnormally low tax rate and a big jump in accounts receivable,” helped First Solar boost its first quarter results. How man more times will they be able to do that?
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