Wednesday, April 11, 2007

Calls of Note Part 5

Bank of America highly positive on First Solar (NASDAQ:FSLR), raising price tgt to $75 from $72 and saying it has the best fundamental model in PV.

Firm expects First Solar to deliver substantial growth. They have confidence FSLR will deliver on announced capacity due to a lack of reliance on polysilicon. They project FSLR's capacity to increase to 275 MW in FY08 from 75 MW in FY06. FSLR should produce well above rated capacity as the result of high utilization rates (127% in Q4).

Due to cost reductions, First Solar is in position to offer grid-parity pricing by FY10-FY12, while maintaining solid operating metrics. FSLR has forecast that it will be in the position to offer grid-parity prices of $1.00-1.25/watt by the FY10-FY12 timeframe while delivering gross margins of 35-40% and operating margins of 25%. To achieve these results, FSLR's production costs are expected to decline from $1.25/watt in 4Q06 to $0.60-0.80/watt in FY10-FY12 due to higher module and line efficiencies and lower labor costs.

Importantly, firm expects First Solar to exceed its target operating metrics due to above-grid pricing in FY10-FY12. FSLR has contracted 2/3 of its production at 6.5%/year price reductions, implying prices/watt of $1.84 in FY10 and $1.61 in FY12. As a result, firm believes upside exists to their FY10 operating margin estimate of 28%.

Notablecalls: The stock is already at its all time high, but a call like this will most probably create even higher levels. Suspect the stock has at least $2 of upside in it today.

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