First Solar: Potential, but not for the squeamish

Posted Dec 13th 2007 5:22PM by Joseph Lazzaro
Filed under: Stocks to Buy, Technology

For long-term plays, the preferred investment is a company with a demonstrated business model (10 years), in an established market, with an average total annual return on equity of 20% during that span.

To be sure, First Solar (NYSE: FSLR) does not fit that profile, but it's worth a review, given both macro fundamentals and the company's outlook. Note: Underscoring, this is a high-risk stock.

First Solar uses an advanced, thin-film technology that uses cadmium telluride semiconductor material to convert sunlight into electricity. With a global polycrystalline silicon shortage holding back some producers of solar cells, First Solar's glass as substrate, coated with cadmium telluride can march ahead, while others await their raw materials.

First Solar's production capacity of 210 MW is expected to jump to 570 MW by the end of 2009. Further, the company has already achieved a 9% conversion rate. The Reuters F2007/F2008 EPS consensus estimates for FSLR are: $1.28/$1.93.

Still, First Solar's technological advances and competitive advantages would not amount to much if two other critical factors were not in its favor: namely, a high oil price and public policy support. On the former, it's becoming more apparent that oil is not likely to dip below $50 per barrel any time soon. Regarding the latter, in August 2007 the U.S. Congress passed a resolution expanding renewable energy incentives. Hence, FSLR is worth the chance, if you're a high-risk investor.

The First Call mean rating for FSLR is: Buy. [19 firms.] Mean 2008 target: $247.10. [high: $310, low: $220.]

Stock Analysis: First Solar is a high-risk stock not suitable for moderate-risk or low-risk investors. Don't buy First Solar if your portfolio already contains an adequate renewable energy / alternative energy component. Don't allocate more than 2% of your portfolio to FSLR's shares. Sell / Stop Loss if you were to purchase shares in this company: $130.

Tags: alternative energy, climate change, energy, environment, First solar, FSLR, global warming, growth stocks, renewable energy, solar energy

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Reader Comments (Page 1 of 1)

12-26-2007 @ 1:06PM

Salty said...

FSLR is due for 100% correction in my opinion. the value of the stock based on fundamentals is only $20 and oil is probably not going any higher and may drop in 08.

More significant is that buyers are paying $600 for each $1 of earnings and operating profit is less than 2%.

Without the hype from Cramer and those who tout solar as a short term energy solution (not so), it would be best to take the profit and wait for at least a year before considering owning this stock based on the present price.