In a Feb. 24 research note, analyst Pavel Molchanov reported that Raymond James upgraded its rating on First Solar Inc. (FSLR:NYSE) to Outperform from Market Perform for the first time since 2010.
This is because cleantech is "red hot" and "the backdrop is the best all-around investor sentiment on cleantech in more than a decade," added Molchanov. For instance, already this year the Eco Index rose 27% and last year it increased 58%.
Molchanov described First Solar as being far from the most exciting cleantech story but in the commoditized module market, it is among the industry leaders. "This is one of the few remaining value ideas, arguably deep value, in cleantech," he commented, "and we think risk/reward is nicely tilted to the upside." First Solar manufactures thin film photovoltaic modules.
Here is what Arizona-based First Solar has going for it, according to Molchanov. It is the only U.S.-based supplier in the global Top 10. Of those, it is the only one without direct exposure to China. It is large scale, cost competitive and highly bankable.
Also, First Solar has a "sterling," cash abundant balance sheet. Though cash flow will likely still be negative this year, year-end net cash of $1.3–1.5 billion equals 25% of the energy company's current market cap. Further, cash outlay is dropping from its peak of $740 million in 2018; guidance for 2020 is $450–550 million. "The balance sheet certainly provides the financial flexibility to initiate buyback (or a dividend) for the first time ever," Molchanov highlighted.
Raymond James has a target price of $65 per share on First Solar, the stock of which is currently trading at around $45.83 per share.
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Disclosures from Raymond James, First Solar Inc., February 24, 2020
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst Pavel Molchanov, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
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Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates, Inc. makes a market in the shares of First Solar, Inc.
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