Tuesday, September 4, 2007

First Solar (FSLR) Upgrade by Cowan

From Notable Calls:
Cowen & Co is out on First Solar (NASDAQ:FSLR) saying they believe the co [u]niquely combines a leading cost structure, over two years of time-to-market advantage vs. potential thin-film competitors, expansion plans that are not gated by raw material, proven ability to ramp capacity, and superior revenue visibility from long-term contracts. Expansion in Malaysia should add scale in its lowest-cost location, plus a declining tax rate. Prospective moves might include a U.S. expansion or upsizing in Malaysia. Firm sees 40% upside vs. the market in 12 months.

Given FSLR's scale, production cost structure and operating leverage, it appears to have well over two years of time-to-market advantage in thin film. Production cost of $1.38 per watt in H1:07 is the best in the industry. Years of investment in R&D have yielded best-in-class, cadmium telluride technology conversion efficiency of 9.5%.

Firm sees room for gross margin upside as likely output per line growth (+8%) exceeds 6.5% annual price declines. As the Malaysia plant ramps, it should enjoy scale economies in its lowest-cost location and the tax rate should decline from about 37% this year to 25% in 2009. Cowen believes above-market growth is sustainable as cost should approach grid-price parity by 2010. Given its advantages, a premium vs. crystalline PV plays appears warranted. Outperform.

Notablecalls: Given the fact FSLR is a momentum darling, I think Cowen's comments regarding 40% upside (vs. the mkt) over the next 12 months should create some buy interest. The chart looks strong too. Would not be surprised to see a move towards the $110 level in the n-t.

Note that Cowen is also poisitive[sic] on SPWR.

Climateer comment:
If you get a 40% move within 12 months one might be looking at a dandy short idea. The sellers in the recent offering at $95 didn't bail because they had a place to put the money that they knew better than FSLR and would show a better return.