The shares of First Solar, Inc. (NASDAQ: FSLR) have started the week on a rocky note. Not only did Friedman, Billings, Ramsey & Co. downgrade the stock from Market Perform to Underperform, the alternative energy issue was also the topic of a skeptical Barron's article over the weekend.
In a note to clients, brokerage firm Friedman cited weak polysilicon prices and the stock's overrich valuation for its downgrade. FSLR closed last Friday at $191.72 per share, compared to Friedman's price target of $110.
Meanwhile, the cautious Barron's write up [subscription required] observes that the Intersolar trade show begins Wednesday in Munich, and pits FSLR against many lower-priced rivals. "One leading customer says it will ditch First Solar's 'thin-film' panels if crystalline silicon alternatives keep getting cheaper.
That seems likely. Silicon prices are expected to drop another 30% by year end. First Solar profits -- and its shares -- could get cut in half," commented the financial paper.
Meanwhile, many speculative investors are betting on an even sharper decline for FSLR during the short term. Peak put open interest of 8,715 contracts lies at the June 140 strike, and short interest accounts for a healthy 10.8% of the equity's available float.
With plenty of downside already priced into the stock, FSLR has already battled back from the worst of its intraday losses. Considering the hefty number of shares sold short, it's possible that today's quick rebound was the result of short sellers rushing to take profits.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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