Weekly Equity Idea Highlight - 2019 09 11
Market expectations for FSLR are currently at historically low levels. The market is expecting UAFRS-based (Uniform) ROA to remain consistently below cost-of-capital levels, with Uniform Asset growth at only slightly positive levels. FSLR has historically been the best operator in the solar space, consistently producing positive returns even as peers have suffered. Also, FSLR has avoided the credit issues of peers by maintaining a very safe balance sheet even in challenging environments. Even with the company's historical superior execution and risk control, they are currently trading at the low end of peer valuation. Clearly, the market is not recognizing that part of their recent poor performance was a decision to leapfrog their technology cycle. Instead, the market is assuming that the company will continue to struggle like their peers.FSLR management's compensation framework aligns them to focus on asset utilization and margin improvement, further reason for investors to believe the market is overly pessimistic. While peers chase growth, FSLR has been smart to drive management to make decisions for improving the productivity of the company's assets, and improving profitability. When looking at the decision to leap-frog a technology cycle with the move directly from Series 4 to Series 6 technology, management appears to be focusing on that issue longer-term, giving reason for expectations for a recovery.
Furthermore, the Q2 2019 earnings call highlighted a positive inflection from management, with continued bookings confidence, and growing excitement and confidence about their strategy for the business, Q3 outlook, cost improvements, and their ability to accelerate Series 6 production.
Considering low market expectations on an absolute basis and relative to peers, positive fundamental momentum from management and potential for a big jump forward related to new products, and proper management alignment to navigate out of their current operational issues, there appears to be material near-term and long-term equity upside for FSLR.
First Solar is a provider of photovoltaic (PV) solar energy solutions. The company designs, manufactures and sells PV solar modules with a thin film semiconductor technology, and also develops and sells PV solar power systems that mainly use the modules it manufactures. The company also provides operations and maintenance (O&M) services to system owners. The company's modules segment involves the design, manufacture and sale of cadmium telluride solar modules, which convert sunlight into electricity. The company's second segment is its systems segment, through which it provides power plant solutions, which include project development, engineering, procurement, and construction services and O&M services.
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