First Solar Concerns May Be Overdone

First Solar has been under pressure lately from analyst downgrades and financial publications warning of a solar glut. On Tuesday, an analyst at Broadpoint AmTech stepped in with some reasons why the stock might rally beginning with the company’s analyst’s day, scheduled for June 24.

That analyst, John Hardy, argues that First Solar may have a stronger year or two ahead of it than investors are giving it credit for. He believes that the company will show during its analysts’ day that its costs have declined this year. Once the lower costs are clear, the price differential between its thin-film solar and polysilicon solar won’t seem as daunting as they do now.

Thanks to its popular and profitable thin-film solar products, First Solar’s stock has been a strong performer in bull markets and a defensive choice in grimmer times. But ever since the latest solar rally began in March, First Solar has been a laggard. While its shares have risen an impressive 50 percent in the last three months, those of JA Solar and Suntech Power have more than doubled, while shares of Solarfun and Trina Solar have more than tripled.

The reason for the recent underperformance is that polysilicon-based solar goods are, in the solar glut, pushing prices down far enough to lure some customers away from First Solar’s less efficient thin-film panels. But AmTech’s Hardy sees the stock rising to $250, or 34 percent higher than its closing price Tuesday. He concludes:

With few catalysts post earnings, FSLR has significantly underperformed the solar group as investors have played a leverage game on a return to normalcy. While we are still positive on the group, we believe that FSLR may begin to play catch-up as it is the best situated player to win significant US commercial and utility business over the next 12-24 months.

Other potential positives mentioned by Hardy: First Solar’s longstanding relationship with Sempra Energy and its low-cost solar products could help it win business with Sempra’s 500-megawatt Mesquite, Ariz., project. And credit markets have loosened enough that co-financed projects could add $100 million to revenue this year.

AmTech’s optimism helped First Solar stock rise 2.1 percent Tuesday to close at $186.75, although it still lagged other solar issues. The Claymore/MAC Global Solar ETF rose more than 5 percent. Still, Hardy’s contrarian view does suggest that First Solar has some life in its near-term future.

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