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First Solar, Inc. Message Board

  • lt_capital lt_capital Dec 13, 2012 1:11 PM Flag

    Reasons FSLR should be valued at well above $100 today

    Here are the reasons I'm a strong bull...

    What we know:
    1) FSLR has already told us they have 3GW of backlog and PPAs. Their estimate is that this represents approximately $8.9B in future revenue. But we also know they have seen their margins shrinking and the question is what is the margin on that $8.9B in future revenue. When you review their conference calls they have indirectly told us what the margins are on that $8.9B. Specifically they have told us that there are $3.4B in "gross cash receipts" still to come in. This is cash net of direct costs. However, it also includes cash for revenue already recognized which can be taken from the balance sheet. Between accounts receivable billed and unbilled they currently have 867M in cash to come in. Removing that from our $3.4B in expected cash receipts of $3.4B which indicates there is approximately $2.5B in gross receipts (ie Gross profit) on the remaing $8.9B of future revenue flow. This gives us a Gross Margin of 28%. We know from 3Q results that at 28% they were running over 10% on net margin. If we assume that the 8.9 splits evenly over 2013 and 2014 then we should expect approximately 4.5B in revenue in 2013 which at 10% Margin would be 450M in profit or 5.29/shr in profit

    2) Overall analyst estimate are for growth of 25% for FSLR over the next 5 years so applying a PE of 25 would be reasonable (see: http://finance.yahoo.com/q/ae?s=FSLR+Analyst+Estimates) which would give us a value of $132.25

    3) Even at current analyst estimates the PEG ratio is .27 which implies (if we give it a PEG of one) that the stock price should be $118/shr

    4) In my view FLSR will be a classic case of "reversion to the mean". FSLR deviated because of the heavy panic selling due to changes in the Solar market primarily in Europe do to their fiscal problems. However, the market didn't anticipate that while Europe was going to buy less there would be offsetting changes in other parts of the world which would continue to drive growth in the market. If you look at the mean price of FSLR over the past five years and average the monthly close price going back 5 years (INCLUDING the last year of low prices) the average is $123/shr

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    • My target is 175$ sometime in 2014

      Sentiment: Strong Buy

      • 1 Reply to whattime0000
      • Other Factors that will help drive the price back up closer to historical levels.

        1) China/India and Arab buying. These countries will likely buy some level of product from FSLR. China is already under pressure from the US to improve trade balance and Chinese Solar companies are losing huge amounts of money. They are likely to diversify their installs with some product from the US to balance the pressure to improve balance of trade with the US and since their companies are losing huge amounts of money it will help reduce losses.

        2) FSLR's Margins bottomed in 1Q at 15% and then have been steadily increasing (2Q, 23% and 3Q, 28%). They are now profitable on the bottom line. Meanwhile, most of their competition is still at 0 or negative Gross Margins and hemoraging a ton of money on the bottom line. They can no longer keep prices as low as they are and they will either go out of business or raise their prices. This will only help to further increase FSLR's margins as we move forward.

        3) Grid Parity - "This report shows not only that the U.S. solar is growing, it shows that utility-scale solar projects by companies like First Solar will dominate the market for the next couple of years. The costs of these projects are already competitive with grid prices; as costs fall the value proposition will only improve." See Motely Fool for full article.

        4) FSLR is leading the field with their Utility scale installations and management. With the amount of money the other competitors are losing they will be hard pressed to invest in and develop the type of infrastructure that FSLR has already developed for managing utility scale installations.

        5) Cash on Balance Sheet - Customers will be hard pressd to invest in Solar projects - which require years to pay off their initial costs - with companies which may go out of business decades before these installations will have finished their life cycle.

        6) Outstanding Short position will help drive a quick reversion to the mean. My view is entrenched shorts will fight to hold their positions to the last moment only to find little mercy as the price escalates exponentially and forces them to close their positions...which will only accelerate the price escalation. In the panic selling it took only 5 months to drop from $132 (beginning of July 20011) to $32 per share (beginng of December 2011). How long will it take to rise as it is becomes clearer that FSLR will likely dominate the Solar Market over the next few years.

        7) The increase in price will bring more investor scrutiny which I believe - when they evaluate the value here - will drive the price correction further and faster.

    • Your logic is sound - problem is your numbers are way off and your assumptions do not match the facts. A PE of 25 is NOT reasonable. The 8.9B in backlog extends FAR beyond 2014 so you can't count those revenues over 2 years. I could go on and on - and your valuation methodology is sound - but your numbers are WAY OFF.

      • 8 Replies to dimondboy
      • Take a look at Netflix with a P/E of 126 !!!! Now that is where the short boys should be headed!!!!

      • So then your probably saying my earnings estimate of $5.29 is too high. That 8.9B is spreads out "FAR beyond 2014". OK...let's see what that means to the stock price. Let's assume that only about 60% that 8.9B is happening between now and the end of 2014...so only about 5.4B. As I pointed out in the other post we know that they are getting gross receipts on the revenue between now and end of 2014 of 2.5B ($3.4B less .9 in already booked revenue). Which means their gross margin on that revenue of $5.4B is about 46% or so. Now again assume we split that revenue between $5.4B between 2013 and 2014....so about $2.7B per year at 46% margin...this is an interesting number because this is just slight more than the revenue and same margin they were running in 2010. That year their stock price averaged $125/shr. Again $100.

      • So then your probably saying my earnings estimate of $5.29 is too high. That 8.9B is spreads out "FAR beyond 2014". OK...let's see what that means to the stock price. Let's assume that only about 60% that 8.9B is happening between now and the end of 2014...so only about 5.4B. As I pointed out in the other post we know that they are getting gross receipts on the revenue between now and end of 2014 of 2.5B ($3.4B less .9 in already booked revenue). Which means their gross margin on that revenue of $5.4B is about 46% or so. Now again assume we split that revenue between $5.4B between 2013 and 2014....so about $2.7B per year at 46% margin...this is an interesting number because this is just slight more than the revenue and same margin they were running in 2010. That year their stock price averaged $125/shr. Again $100.

        So when you see the price going up a buck a day and ask yourself why....this is why. The market sees it. So argue all you want about my figures on revenue and margin. In February when they have their conference call we'll know. I'm betting on the analysis and I think the market is seeing the same thing I am. This is way undervalued and well be going up a buck a day until we hit $60 or more is my bet. Then we'll slow down and the march to $100 won't begin until the February conference call.

      • Ok.....well I'll set aside your lack of knowledge and opinion that 25 PE's are by definition wrong. (Note: PE's are based on the growth prospects of the company and there are lots of cases where you will find PE's of 25. If all companies were overvalued because they had a PE over 25 then there would be no companies over 25....but there are.) Instead, let's assume some of your points have merit.

        Let's consider the PE argument. So PE of 25 is too high you say? Let's make it 20 then. 20 x 5.29/shr that I calculated is still $105/shr. Still over 100. And don't try and tell me that it should be a PE of 10. That is lower than the S&P at 15/16....and don't say it should be 15 or 16 because that is too low. The underlying earnings of the S&P aren't projected to grow by 25% per year.

      • Ok.....well I'll set aside your lack of knowledge and opinion that 25 PE's are by definition wrong. (Note: PE's are based on the growth prospects of the company and there are lots of cases where you will find PE's of 25. If all companies were overvalued because they had a PE over 25 then there would be no companies over 25....but there are.) Instead, let's assume some of your points have merit.

        Let's consider the PE argument. So PE of 25 is too high you say? Let's make it 20 then. 20 x 5.29/shr that I calculated is still $105/shr. Still over 100. And don't try and tell me that it should be a PE of 10. That is lower than the S&P at 15/16....and don't say it should be 15 or 16 because that is too low. The underlying earnings of the S&P aren't projected to grow by 25% per year.

        So then your probably saying my earnings estimate of $5.29 is too high. That 8.9B is spreads out "FAR beyond 2014". OK...let's see what that means to the stock price. Let's assume that only about 60% that 8.9B is happening between now and the end of 2014...so only about 5.4B. As I pointed out in the other post we know that they are getting gross receipts on the revenue between now and end of 2014 of 2.5B ($3.4B less .9 in already booked revenue). Which means their gross margin on that revenue of $5.4B is about 46% or so. Now again assume we split that revenue between $5.4B between 2013 and 2014....so about $2.7B per year at 46% margin...this is an interesting number because this is just slight more than the revenue and same margin they were running in 2010. That year their stock price averaged $125/shr. Again $100.

        So when you see the price going up a buck a day and ask yourself why....this is why. The market sees it. So argue all you want about my figures on revenue and margin. In February when they have their conference call we'll know. I'm betting on the analysis and I think the market is seeing the same thing I am. This is way undervalued and well be going up a buck a day until we hit $60 or more is my bet. Then we'll slow down and the march to $100 won't begin until the February conference call.

      • Ok.....well I'll set aside your lack of knowledge and opinion that 25 PE's are by definition wrong. (Note: PE's are based on the growth prospects of the company and there are lots of cases where you will find PE's of 25. If all companies were overvalued because they had a PE over 25 then there would be no companies over 25.) Instead, let's assume some of your points have merit.

        Let's consider the PE argument. So PE of 25 is too high you say? Let's make it 20 then. 20 x 5.29/shr that I calculated is still $105/shr. Still over 100. And don't try and tell me that it should be a PE of 10. That is lower than the S&P at 15/16....and don't say it should be 15 or 16 because that is too low. The underlying earnings of the S&P aren't projected to grow by 25% per year.

        So then your probably saying my estimate of 5.29 is too high. That 8.9B is spreads out "FAR beyond 2014". OK...let's see what that means to the stock price. Let's assume that only about 60% that 8.9B is happening between now and the end of 2014...so only about 5.4B. As I pointed out in the other post we know that they are getting gross receipts on the revenue between now and end of 2014 of 2.5B ($3.4B less .9 in already booked revenue). Which means their gross margin on that revenue of $5.4B is about 46% or so. Now again assume we split that revenue between $5.4B between 2013 and 2014....so about $2.7B per year at 46% margin...this is an interesting number because this is just slight more than the revenue and same margin they were running in 2010. That year their stock price averaged $125/shr. Again $100.

        So when you see the price going up a buck a day and ask yourself why....this is why. The market sees it. So argue all you want about my figures on revenue and margin. In February when they have their conference call we'll know. I'm betting on the analysis and I think the market is seeing the same thing I am. This is way undervalued and well be going up a buck a day until we hit $60 or more is my bet. Then we'll slow down and the march to $100 won't begin until the February conference call.

      • A PE of 25 is reasonable if a third of the price is in tangible equity

      • No dimondboy, the PE of 25 is what comes with over-valuation, that is reflected in over-bought conditions, which may be linger for months/years. No, you can't go on and on, but you can explain why you pumped your 41 short, then rode it to 11 and back to 33. Sounds illogical, like your numbers sound, too.

    • OK...I'm going to post point by point responses on the SA article by Sneha Shah. This article appears to intentionlly bend the truth to suit it's thesis. I'll start with probably the pivot point of the article...that it is FSLR uncompetitive costs which make it a short opportunity. The article comes up with two central points on the costs: 1) that the "processing" cost on polysilicon solar has gone down to 47 cents and 2) that FSLR is "stuck" at 65 cents.

      First off, his statements are only a partly true. If you read the latest material from CSIQ, JKS and TSL you'll find that NONE of them had overall cost under 59cents per watt (67cents, 59cents and 64cents repectively). Meanwhile, FSLR's 3Q costs were 67cents down 5cents QTQ (not exactly "stuck") and if you remove underutilization they were at 62 cents. Furthermore, if you strip out other overheads (stock based comp, frieght etc.) their core cost per watt is 53cents. However, in my view, more important than cost per watt, on the bottom line in 3Q FSLR had a gross margin of 28%, whereas the Chinese manufacturers were at 1%, 9% and 2% margin respectively. So if the Chinese manufacturing costs are believed they have somehow squandered that advantage at the overall level. Moreover, FSLR has been coming back on it's margins since 1Q where it bottomed out at 15% then went to 23% then 28%. The Chinese manufacturers haven't.

      So I agree with his premise "it's the costs stupid", my conclusion is FSLR has the advantage. In fact, as I've pointed out in the previous posts in this thread their margin on current backlog is in the range of 28% for the next two years. I'm not sure these Chinese manufacturers can say the same thing.

    • Will say comical article this weekend. love the old "covered" quote. funny I remember saying to sell at $13. must be wrong. :) IMO

    • 4 weeks until we hear what FSLR has to say......going to be a lot of pressue on the shorts.

    • bump

    • Stop talking and buy a few thousand shares, heck buy 1 million!

    • Interesting comparing numbers from Netflix.....
      _____________________________________________

      Netflix
      _____________________________________________

      FY Rev $3.6B up 12% YTY
      FY EPS 16cents down 93%

      Market Cap at close $5.74B
      After hours +$35 increasing market cap to $7.7B

      PE at close 338, after close 448 (must kill dimondboy given he doesn't believe in PE's above 25)
      ____________________________________________

      First Solar (analyst avg esimates from Yahoo)
      _____________________________________________

      FY Rev $3.6B up 30% YTY
      FY EPS $4.62

      Market Cap at close $2.71B

      PE of 7

      Now for every $10 that FSLR goes up shorts lose about $220 million. A $40 increase would be close to a $1 billion loss. I'm sleeping well at night.

    • Chile, Mexico just add to the reasons why FSLR should be well above $100. Looks like this could be a replay of that Netflix movie from last week. :-)

    • If you are going to use this as a reason to buy the stock then you should first short AMZN as it has a 180 PE ratio and its profit margin is 1.9%. And yet, AMZN keeps going up.

      These days, with computers doing most of the trading, you need to be careful in trading off of fundamentals. The game has changed.

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FSLR
64.42+0.03(+0.05%)Jul 9 4:00 PMEDT

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