Investidea: First Solar, because first the sun

Инвестидея: First Solar, потому что сначала солнце

Investidea: First Solar, because first the sun

Today we have a speculative idea: take shares in solar module manufacturer First Solar (NASDAQ: FSLR), in order to capitalize on the expected growth in demand for its shares.

Growth potential and validity: 14,5% behind 12 Months; 50,5% behind 3 of the year; 10% per year for 15 years.

Why stocks can go up: because recently they have fallen heavily and the company can be bought.

How do we act: we take shares now by 80,75 $.

When creating the material, sources were used, inaccessible to users from the Russian Federation.

We hope, Do you know, what to do.

No guarantees

Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.

And what is there with the author's forecasts

Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.

So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.

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Investment editorial office

What the company makes money on

FSLR makes solar modules and provides services in the field of solar energy. Recently, a very large review of the company was published in the magazine., in which there is everything, what you need to know about her business.

Four theses, important to our history:

  1. The production of solar panels is almost 80% company revenue. Segment gross margin — 20,29% from its proceeds.
  2. Solar energy services for power generation companies is approximately 20% proceeds. The segment is much more marginal than goods: its gross margin is 43,42% from its proceeds.
  3. 84% The company's sales are in the USA.
  4. 2/3 the company's assets are located outside the US, mainly in Asian countries, not in China.

Arguments in favor of the company

Fell down. Since November, the company's shares have fallen sharply.: with 121 to 80,75 $. Several factors contributed to this.

In November 2021 американский суд, arbiter of trade, decided to reduce tariffs on imported solar panels from 18 to 15%. The company's shares began to fall on expectations, that the American market will begin to fill with cheap solar panels from China.

Maybe, these fears are premature. Firstly, rates have not been cut that much., so that it leads to a wave of imports, - And this is the main point. Secondly, given the propensity of the United States to put pressure on the Chinese high-tech sector, one can assume, what in this area the Americans will do nasty China, which will prevent Chinese companies from developing exports to the American market. For example, will impose sanctions against the main "solar" companies of China "for Xinjiang".

В марте компания дала прогноз на 2022 year, which turned out to be worse than the expectations of most stock analysts: выручка в пределах 2,4—2,6 млрд — это меньше 2,76 billion, expected by analysts. The main reason is this, of course, logistical problems and rising cost of raw materials. The situation is unpleasant, but overall nothing fatal.

Solar first! The growth of the power of the ESG lobby will help pump these shares. Moreover, in its category, FSLR looks very interesting and you can invest in it not only from environmental, but also from an economic point of view.

Besides, I think, that the next initiatives of the American government in the field of direct and hidden subsidies for green energy will not be long in coming and FSLR will break off something.

Conjuncture. The rapid rise in prices for traditional energy carriers in Europe as well, and in the US makes solar energy more profitable and will stimulate consumption of FSLR products as in the US, and in Europe. Now it's hard to say for sure, how long will this situation last. But I think, what, given the dynamics of the situation in Eastern Europe and the lack of funding for oil and gas projects, prices will remain at a high level for a long time, - and this, undoubtedly, will be positive for FSLR.

Normal and cheap. P / S at the company 3,07, a P / E 19,15 - it is relatively inexpensive by the standards of the clean energy sector, where often P / E more 100, a P / S is in tens. From a business point of view, FSLR is also doing well.: The company's total margin is approximately 16% from proceeds, on 80% это чисто операционные доходы компании. Think, this will attract not only greens to First Solar shares.

Housing and communal services. A very marginal segment of FSLR services has a great future due to the ultra-active reception of clean energy in the housing and communal services sector. Traditional power supply and power generation companies are trying to run ahead of the steam locomotive and prove to the ESG community their commitment to save the environment, to avoid harassment of quotes and complications of credit conditions. FSLR with its extensive experience in implementing projects for others will be very useful here..

Living within their means. Company 1,454 billion in arrears, out of which 726,878 million needs to be repaid within a year. При этом у нее на счетах есть 1,45 billion, а еще есть задолженности контрагентов на 429,436 million. In my opinion, the absence of large debts will attract investors into the company's shares in the light of raising rates and rising prices for loans.

Can buy. В абсолютных числах компания стоит недорого — капитализация 8,54 billion dollars. In combination with the above factors, this predisposes to the purchase of the company by someone larger..

What can get in the way

Same, as before. Most of the company's assets abroad, leading to logistical problems. Plus, the company will be hit by an increase in the cost of raw materials needed for solar panels. Here it is necessary to take into account both the developments in Eastern Europe, and the growth in demand for this raw material in connection with the transition of developed countries to clean energy.

The optimist will say, that these risks are already included in the price of FSLR, but I'm still not entirely sure: it seems to me, there's always a chance, that things will get worse.

Privileges. There are a number of exemptions for solar panels in the US. Here are the two most important perks. The first one is deduction 26% from the cost of the solar panel. IN 2023 льгота уменьшится до 22%, and in 2024 - to 10%. Gradual withdrawal of benefits, probably, already priced in FSLR shares, but it's still worth considering.

The second is a system of benefits for those, who installs solar panels in california, in the main market for US solar companies. Now there are talks about the transformation of this system in line with, less profitable for solar energy, and there are risks, that the state authorities will abolish the existing system of benefits.

In this case, FSLR quotes risk flying to hell., and her business will suffer. This, in my opinion, the biggest threat to the company. And what's the worst, predict, When will the benefits system be abolished?, it is forbidden: The vote on this issue has been postponed indefinitely..

Paradigm shift. The company's business is marking time and is generally not growing. And then, what the company has, it has thanks to the unprecedented injections of the governments of developed and not very countries into clean energy.

There is a tiny chance that, what, facing a real energy shortage and economic crisis, OECD countries will decide to turn the wick on and stop mindlessly funding initiatives in this area, contrary to economic logic.

Certainly, the probability of this is vanishingly small: the United States and Europe have gone too far in this area, to change policy now. However, it must be understood, that without political conjuncture, FSLR products and services would not be of interest to anyone.

What's the bottom line?

Shares can be taken now by 80,75 $. And then there are three ways:

  1. Wait for growth until 92 $. Here it is better to focus on 12 Months. This seems like a very modest goal to me.: in April 2021 я купил эти акции по 81,19 $ with the intention of selling them for 93 $ within the next purchase 14 months, literally, that "ESG will pump them up". As a result, stocks have risen much steeper in a shorter period of time., and in October of that year I sold them for 105 $. Now the conjuncture for FSLR seems to me more positive, given the high level of prices for traditional energy sources.
  2. Wait for the stock to return to the level 121 $. Here you have to be prepared to wait. 3 of the year.
  3. Hold shares 15 years.

The most important factor in this idea is the situation with the cancellation of benefits in California.. There is no single source of information on this subject.. You can view the website of the California Housing Commission, but there is nothing special: important events are covered in the news earlier, than on the commission website.

It will be useful to subscribe to the New York Times mailing list (NOW), on current events in California. Probably, there will cover this story in great detail, because the NYT is a progressive left-liberal publication, which will certainly not bypass this problem and start hysterical about a possible cancellation even before the vote itself.

But if you are not ready to endure the risks of falling stocks from unpredictable actions of the regulator, then don't touch them. Unfortunately, predict, when is the next vote, it is forbidden: everything is decided "in the moment".

And if the benefits are canceled and you won’t be able to exit without fixing the loss, then, maybe, one should wait for the phenomenon of Biden ex machina: may be, the US federal government will intervene and sue California regulators or roll out commensurate benefits at the federal level.