Trading Outlook for First Solar Inc. (FSLR)

First Solar Inc. (FSLR) develops, designs, manufactures and marketssolar electric power modules.  Its thin-film semiconductor technologyis proprietary, employing thin layer of cadmium telluridesemiconductors to convert sunlight into electricity.  In a jointventure with EDF Energies Nouvelles S.A., the Company designs andengages in commercial solar projects in the United States and Europe.

Founded in 1999, the Company is headquartered in Tempe, Arizona.

Share Statistics

11-Aug-09)

2007

2008

%

Chg

Q2 2008

Q2 2009

% Chg

Symbol

FSLR

Revenue, $Mn

504

1246.3

147%

267

525.9

97%

Current price

136.75

Gross marg.

46.53%

51.83%

175%

52.5%

56.2%

111%

52wk Range:

$85.28-249.90

Oper. margin

27.22%

35.17%

219%

33.2%

38.8%

130%

Avg Vol (3m):

3,624,110

Net margin

31.43%

27.95%

120%

26.1%

34.3%

159%

Market Cap.

11.58B

Dil. Shares Outst.

85.67M

EPS, $

2.031

4.242

109%

0.850

2.242

164%

Source: Reuters.com, SEC Filings.

Financial Summary

SALES (in millions)

# of Estimates

Mean

High

Low

1 Year Ago

Quarter Ending Sep-09

29

515.31

602.38

381.00

590.95

Quarter Ending Dec-09

28

525.40

635.00

458.00

637.24

Year Ending Dec-09

30

1981.22

2172.00

1782.00

2175.84

Year Ending Dec-10

30

2490.05

2887.10

1998.21

3045.10

Earnings (per share)

Quarter Ending Sep-09

30

1.61

2.09

1.15

1.87

Quarter Ending Dec-09

27

1.52

2.10

0.99

2.10

Year Ending Dec-09

35

7.26

8.55

6.45

6.97

Year Ending Dec-10

35

7.55

10.74

4.26

9.97

Growth Rate (%)

12

38.03

90.00

15.00

49.75

Source: Reuters.com

Analyst Consensus

The mean of 34 analysts polled by Thomson Reuters rate shares ofFSLR a “Outperform.”  The details of the analysts polled are as follows:

Analyst Recommendations and Revisions

1-5 Linear Scale Current 1 Month
Ago
2 Month
Ago
3 Month
Ago
(1) BUY

12

12

13

13

(2) OUTPERFORM

4

4

7

7

(3) HOLD

16

15

13

12

(4) UNDERPERFORM

1

1

1

1

(5) SELL

1

1

1

1

No Opinion

0

0

0

0

Mean Rating

2.26

2.24

2.14

2.12

Source: Reuters.com

Investment Highlights

Overview

FSLR develops, designs, manufactures and markets solar electricpower modules.  Its thin-film semiconductor technology is proprietary,employing a thin layer of cadmium telluride semiconductors to convertsunlight into electricity.  In a joint venture with EDF EnergiesNouvelles S.A., the Company designs and engages in commercial solarprojects in the United States and Europe.

Market

The market for photovoltaics (PV) reached nearly $20 billion in2008, with estimates of a total market size reaching $34 billion by2013.  The rapid growth in this sector presents varied opportunities,as the direction of this sector is expected to continue indefinitely atvarying rates of growth.

Initially, the most likely leading consumer of PV technology willcome from commercial and public entities, as the economic advantages ofPV is of paramount concern of stockholders, as well as to state andmunicipal government officials struggling with static or shrinkingbudgets.

Market growth is dependent upon PV per watt unit costs and the priceof competing energy sources.  PV technology is very attractive as analternative to traditionally produced electricity as higher oil pricelevels are achieved, which has driven a flood of new investment into PVduring most of this decade.   With increasing government-sanctionedprograms, tax cuts, grants, better overall returns on investmentcapital are expected to facilitate rapid consumer acceptance andadoption of PV technology.

The Company’s ability to grow its business track investor investmentflow and the spot price of oil and natural gas, which exploded to $147per barrel of oil and $13.5 per mcf (million cubic feet) of natural gasin late June of 2008, then dropped to $35 per barrel and $3.50 per mcf,respectively, in December.  Since December, oil recovered to $69+ perbarrel, while natural gas is now expected to reach $5 to $6 per mcf bythe end of 2009.  Correlation analysis reveals as the price of spot oiland natural gas rise, investment volume into solar technologies andstock prices also rise.  Publicly traded solar companies ralliedstrongly in 2008 during the strong move up in the price of oil, andconversely dropped along with the spot price of fossil fuels.

Since capital formation of the PV market is correlated strongly tofossil fuels prices, factors affecting oil and natural gas price areimportant considerations in an investment into any alternative fuelsenterprise.  Therefore, factors affecting the prices of fossil fuelsplay the largest role in the success of alternative energy sources,including PV technologies.

Energy analysts cite the post-June 2008 plunge and subsequentoversold condition in oil and gas prices to panic liquidation ofcontracts by hedge fund managers during the credit and liquiditycrisis, which began in earnest in September of 2008.  However, as theglobal economy stabilizes, the spot price of coal, oil and its popularsubstitute, natural gas, are expected to firm, according to the EnergyInformation Administration (EIA).

Other private analysts such as Matt Simmons of Simmons &Company, and William Powers of Powers Energy Investor, hold moreoptimist price levels of oil and natural gas prices, citing evidence ofworld peak oil production and expected increased demand as world GDPbegins to regain its upward projection.  Consumer and investor demandfor alternative energy sources will rise significantly as a result ofthe dis-functioning dynamics expected in the oil and natural gas marketearly next year.  PV will play a significant role in the public andprivate shift toward alternative fuel solutions during ever decreasinginventories of oil.

Global production remains a key driver of fossil fuels prices andalternative energy investment, with production in both OECD and ASEANcountries weighing heavily on total world production outputs.  Mosteconomists expect a rebound in durable goods production in Asia,especially China.  China’s real GDP growth is expected to reach 8% in2010, officially, while GDP growth in the OECD countries is anticipatedto be flat or rise slightly.  Since the demand for energy correlatesstrongly with overall economic activity, oil and natural gas prices maycontinue higher as excess inventories are depleted and diminishing newsupplies struggle to satisfy this demand sometime in 2010, according tothe Energy Information Administration (EIA).  Increased investment inPV technologies is expected to follow GDP growth, which affect fossilfuels prices and demand for alternatives.

The nature of most transactions made in the oil market is anotherbullish factor affecting investment into alternative energytechnologies such as PV.  Since the majority of transactions for oilare conducted in the U.S. dollar, the anticipated continuation of thedollar’s decline will attract hedge funds and institutions intopurchasing oil and natural gas as a currency hedge to further declinesin the Greenback.  As the dollar reaches record lows on the USD Index,oil and natural gas prices were reaching record highs.  A re-test ofthe lows of the U.S. dollar increases demand from institutional andhedge fund managers for oil and natural gas, as these markets are thedeepest and most liquid in the commodities space.  The PV sector willbe among many beneficiaries of the bear market in U.S. Dollar.

The Short Term

Presently, the supply/demand fundamentals for the industry are unfavorable to producers of PV panels.

Globally, the demand for panels has dropped significantly followingthe initial surge earlier in the decade.  The cost of producingelectricity from PV is approximately four times more than power derivedfrom natural gas.  Natural gas prices must rise significantly fromcurrent levels to move private industry toward PV solutions. Government initiatives to deploy PV panels have supported the solarmarket through conversions and investment in utilities’ increasingusage of solar power.

The supply of solar panel capacity reached 9,000 megawatts in 2008,while demand contracted to approximately 6,000 megawatts during thesame time.  Industry analysts expect this supply/demand imbalance tocontinue through 2012.

FSLR is a leader in the PV market, and should be a primarybeneficiary of government-sponsored programs which has significantlysupported the industry.  Until renewed world GDP growth puts intenseupward pressure on fossil fuels prices, meaningful demand from theprivate sector remains weak.

Technical Analysis

fslr Trading Outlook for First Solar Inc. (FSLR)

Source: http://stockcharts.com/h-sc/ui?s=fslr
FSLR trades above its 13-day moving average. This bullish sign issignificant because the moving average are also positively trending.

The MACD for FSLR currently indicates a bullish signal.  The MACD isabove the signal line, a 9-day moving average of the MACD.  The MACD isalso below, however, the critical level of 0, which implies the pastprice action had been negative.  Overall, the chart is neutral.

Comparative Analysis

Company Name

Ticker

Price per

Mrkt. Cap.

P/E

P/S

11-Aug-2009

symbol

Share, $

$ Million

2009

2010

2009

2010

Q-Cells SE

Sharp Corp. LTD ADR

SHCAY

11.85

n/a

n/a

n/a

n/a

n/a

Suntech Power Holdings Co

STP

15.97

2,630

n/a

n/a

1.62

n/a

Industry Median

25.36

n/a

2.13

n/a

First Solar Inc.

FSLR

136.75

11,580

19.73

n/a

6.87

n/a

Source: Thomson Financial

Insider Trading Activity

NET SHARE PURCHASE ACTIVITY

Insider Purchases – Last 6 Months

Shares

Trans

Purchases

n/a

0

Sales

3,268,950

15

Net Shares Purchased (Sold)

(3,268,950)

15

Total Insider Shares Held

33.72M

n/a

% Net Shares Purchased (Sold)

(8.8%)

n/a

Net Institutional Purchases – Last 6 Months

Shares

Net Shares Purchases (Sold)

(1,220,820)

% Change in Institutional Shares Held

(2.4%)

Data provided by Thomson Financial

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