Thursday, June 30, 2011

First Solar (NASDAQ:FSLR): Home run on loan guarantees - Credit Suisse

The call of the day comes from Credit Suisse Solar team as they comment on First Solar (NASDAQ:FSLR) following an Associated Press report saying the company has won conditional loan guarantees for 3 of their Solar projects.

Here's the link: APNewsbreak: Solar loan guarantees announced

- CSFB is raising their CY11 EPS from $9.00 to $9.68; CY12 EPS goes from $9.92 to $14.03; their CY13 EPS goes from $8 to $12.62; CY14 goes from $3.70 to $9.29.

These are all hefty raises, now way above consensus.

- CSFB is raising their target on FSLR to $135 (prev. $100) noting the stock could over shoot to the $140-$150 level today to reflect longevity of earnings through 2013.

Here are some of the details:

Bottomline – raising estimates and target price. FSLR already had the Agua Caliente conditional loan guarantee in the bag, and had loaded the bases by submitting additional loan guarantees on three other projects to the DOE. Now the company has literally knocked the ball out of the park – with the Associated Press reporting that the DOE is expected to announce on Thursday that $4.5bb in additional conditional guarantees will be issued for FSLR projects.

Details: 1) $680mm for AV solar ranch; 2) $1.88bb for Desert Sunlight; 3) $1.93bb for Topaz. We had noted in several notes in the past, including most recently on Monday, that all three were in the running for a loan guarantee and the DOE had recently likely concluded the credit review of these projects. We had also noted that this week would be crunch time for additional loan guarantees. We were modeling FSLR will get one additional guarantee, but had noted all three projects were in the running. Getting all three additional guarantees is a positive surprise to our expectations, and we are therefore raising our estimates and target price.

The additional longevity of earnings at this high level is a key change in the equation – which could result in the stock trading up to $140-$150 levels. We are therefore using a simple DCF now to arrive at a new price target of $135 on the stock. Eventually the bear thesis will need to revert back to oversupply such that the panel business possibly loses money due to competition – but this is an issue the market may not focus on in the very near term.

Notablecalls: This is easily the most significant piece of Solar news this summer. These FSLR contracts were signed around 2008, which means the terms are very favourable in terms of pricing vs. today. The DOE loan guarantees provide very cheap financing, which further amplifies the profitability of the projects. The upside could be $5-6 in EPS in 2012/13.

Most analysts were expecting 1 or 2 of the projects to get DOE backing but NONE expected a slam-dunk (all 3) decision we got today.

Solar has been extremely out-of-favour sector evidenced by the whopping 46% short interest in FSLR. I would call this an explosive combo.

I expect FSLR to trade $140-145 range today. Yes, I'm expecting a $10-15 pt move.

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