Wednesday, December 16, 2009

First Solar: "Is it Still a Growth Stock?" (FSLR)

Update: "First Solar Announces 2010 Guidance and Capacity Expansion Plans (FSLR)"
Original post:
Today's analyst webcast is pretty highly anticipated, not just by FSLR traders/investors but for insight into the whole industry.
From The
...The more important reason for the atypical event organized by First Solar, however, may be that there are big questions as to First Solar's capital expenditures for 2011 -- questions that run to the heart of whether First Solar is still a technology growth company, and which First Solar may finally have the visibility to speak on.
Pacific Crest Securities analyst Mark Bachman, for one, has drawn a line in the sand, and above that line are the words "capital expenditures." Maybe there are even a few lines to underscore the importance of these words to the solar analyst.
Bachman, who issued a report on First Solar on Monday, said the planned Wednesday Webcast with new CEO Gillette should place the view on First Solar in stark relief: buy or sell, and no in between.

Here's why and how: Bachman says that the 2010 outlook for First Solar is pretty much certain; somewhere in the neighborhood of $6 earnings per share is reasonable, and that is going to be a down-but-expected message from First Solar. "I think it will be a pretty sour message they will send on 2010, that they can't bring on capacity, and if they peg earnings per share at $5 or $6, they have to give investors something to look forward to in 2011," Bachman said.
What long-term will look forward to is a level of capital expenditure in 2011 that proves First Solar is still a growth stock and will head back up to $8 earnings per share. "Solar is very growth-oriented, and for the time being, you have to say First Solar is still a technology growth stock, but I have concerns," Bachman said.

Bachman explained the problem in simple math: If First Solar is a $6 per earning share stock in 2010, trading at a multiple of 20x, it is more than fully valued after today's bump up to above $138 -- it has been moving up from a low point of $118 since the beginning of the month. Bachman assumes that First Solar can't bring on more capital expenditures in 2010, which means it has to bring on capital expenditures in 2011, and in a big way. "We already see the $6 priced into the stock," Bachman said.

So if First Solar is still a growth stock, the capex number needs to be big. "It takes five quarters to bring on capacity, so First Solar has to announce now for 2011," Bachman stressed.

How big does CAPEX need to be for 2011? Bachman said $700 million would provide a comfort zone for belief that First Solar was going to be able to generate the required capacity growth to increase earnings. That is based on estimating $160 million in spending across four new factories and 225 MW per factory. Bachman noted that the number could be adjusted down based on efficiencies that First Solar has achieved, but somewhere in the range of $600 million to $700 million is required....MUCH MORE