FSLR: Ticonderoga Says Sell, Modules To Lose Money In 2012

Shares of solar energy technology supplier First Solar (FSLR) are up $1.25, or 2%, at $57.16 despite a downgrade this morning by Ticonderoga Securities analyst Paul Leming, who cut his rating on the stock from Neutral to Sell, with a $40 price target, arguing that pricing and volume declines in solar equipment will crimp revenue and profit.

Prices for the “thin film” version of solar modules sold by First Solar are “at or below 90 cents per watt” writes Leming, which means First Solar is at best break even based on its manufacturing costs, he writes.

“Pricing throughout photovoltaic value chain appears to be accelerating to the downside,” writes Leming, “consistent with disappointing Q4 volumes, massive overcapacity throughout the value chain, and the reality that still weaker volumes in the seasonally soft first half of the year (2012) will soon become a reality in the industry.”

Leming thinks First Solar’s modules will start to lose money next year, given that prices for polysilicon, the other material used by competitors, is likely to “break $30 per kilogram over the next nine months.”

Leming thinks First Solar is “absurdly” burying the risk to module profits by hiding their actual pricing in First Solar’s “downstream project business,” an accounting gimmick, in his view.

Leming cut his 2011 revenue estimate to $3.42 billion in revenue from $3.61 billion previously, and cut his EPS estimate to $8 from $8.23. For 2012, his numbers go to $4.1 billion from $4.2 billion and his EPS estimate goes to $6.30 from $7.

Gordon Johnson with Axiom Capital this morning offered his own note on the risks to First Solar. He notes that Phoenix Solar, which is Germany’s largest installer of solar panels, yesterday cut its year outlook because of the “current market environment.” The company now projects �300 million to �400 million in revenue, down from �635 million.

Because Phoenix may not meet its loan obligations, Johnson theorizes the company will have to dump its inventory of panels, “the bulk of which consists of First Solar panels,” writes Johnson.