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First Solar ‘s ( FSLR ) quarterly $31.5 million R&D spending average is starting to pay off, Argus analyst David Coleman said Wednesday, noting the No. 1 solar installer’s technology is becoming cost-competitive even without subsidies. Coleman rates First Solar stock a buy, but he slashed his price target to 66 from 90. Shares have pulled back 33% since hitting a 2016 high on March 18, as earnings last month missed Wall Street expectations. Over the past three months, First Solar stock has fallen 23.1% vs. a 6.8% gain in the S&P 500. But midday on the stock market today , First Solar stock was up nearly 2%, near 50. Shares of top rival SunPower ( SPWR ) were up a fraction, trailing IBD’s 20-company Energy-Solar industry group, which was higher by close to 2%, above 27, after touching a three-year low of 25.86 on May 10. The group ranks just No. 180 out of 197 groups tracked by IBD. First Solar stock was slammed on the company’s $100 million Q1 sales miss last month. Then, the firm announced CFO Mark Widmar would succeed CEO James Hughes, effective July 1. Hughes will join the board. But that sales miss was largely due to the timing of project revenue recognition, Coleman wrote in his research report. Predicting quarterly sales for developers like First Solar and SunPower can be tricky. This month, SunPower’s Q2 sales view lagged by $400 million. “Overall, we remain optimistic about the company’s long-term earnings power; however, investors should expect First Solar’s financial results to be uneven on a quarter-to-quarter and year-to-year basis due to the timing of revenue recognition,” he wrote. First Solar Rides Cadmium Telluride R&D During Q1, cash declined 3.5% sequentially to $1.1 billion, but First Solar remains profitable “even as its peers have been hurt by oversupplied markets and a lack of pricing power,” Coleman wrote. It investments in cadmium telluride technology are starting to pay off. “We see evidence that First Solar’s technological investments are paying off, as they have enabled the company to lower the cost of solar generation on a per-watt basis and to expand its opportunity set of utility-scale projects,” he wrote. Cadmium telluride should provide a cost advantage vs. more commoditized solar module technology such as polysilicon, Coleman wrote. In some markets, it’s becoming cost-competitive even without subsidies — a tough goal for solar companies still largely dependent on governmental whims. By 2025, First Solar expects to have 40 gigawatts in North American utility installations, implying 21.9% growth. The company also has bookings in Turkey, Japan, Australia, India and Africa, Coleman wrote. First Solar should also benefit from stricter environmental regulations on fossil-fuel-based power, and from increased government and public support for solar. Last year, the U.S. Congress extended the Investment Tax Credit (ITC) on solar by five years, avoiding a cliff in 2017 installations. The biggest risk lies in First Solar’s dependence on utility-scale deployments, Coleman wrote. “If the market for utility-scale solar power generation does not expand significantly over the next few years due to cost factors or technological or political developments, First Solar would likely experience slower-than-anticipated growth,” he said. Scalper1 News
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