First Solar, Inc. FSLR shares plunged 7.3% to $51.06 on May 26 after RBC Capital Markets LLC downgraded its rating on the company to Underperform from Sector Perform. This marks the first major share price decline for the company after the 11% drop it witnessed in Nov 2014 following its third-quarter earnings announcement.
The downgrade came on the back of the analyst’s belief that the company may not be able to to meet its revenue as well as earnings targets for 2016. RBC Capital even lowered its 12-month price target for First Solar to $34.00 from $54.00 and predicted the company’s earnings in the range of 27–39% of the company’s earnings guidance range of $3.50–$5.00 per share.
According to the analyst, First Solar, the biggest U.S. producer of solar modules, is unlikely to gain a cost advantage over its competitors’ technologically advanced crystalline-silicon modules.
The analyst pointed out that First Solar’s strength was in the building of solar power plants using its cheaper panels as compared to the more efficient but pricier crystalline-silicon modules.
However, RBC estimates that the efficient silicon modules will likely be only 2 cents per watt more expensive by the end of 2015. Hence, the company may lose valuable contracts for large-scale power plants.
Moreover, the company’s exposure to utility-scale projects, which are characterized by prolonged lead-time and development cycles, may deter it from meeting its revenue expectations.
First Solar’s first-quarter 2015 results were also disappointing, with the company incurring a quarterly loss for the first time in years as it planned to form a YieldCo with fellow solar company, SunPower Corp. SPWR. Delays in multiple projects under construction also led to the weak performance. The company reported a loss of 62 cents per share as against earnings of $1.89 per share in the prior-year quarter. Revenues in the quarter plunged 50.6% year over year as well.
Moreover, intense competition in the solar space with companies like Canadian Solar Inc. CSIQ and Enphase Energy, Inc. ENPH, exposure to geopolitical risks, and uncertainties regarding tax credit constitute major headwinds for the company.
First Solar presently carries a Zacks Rank #3 (Hold).
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