This morning, JMP Securities analyst Joseph Osha downgraded First Solar (FSLR) two notches to Underperform as he believes the recent policy developments in China will likely put pressure on its margins past 2019. Yesterday, his peer at Bank of America Merrill Lynch had also cut his rating on the stock to Neutral, voicing similar reasons. However, Roth Capital analyst Philip Shen remains bullish, recommending investors buy the stock as he believes Chinese policy changes do not materially change the earnings outlook for the company. JMP SECURITIES SAYS SELL FIRST SOLAR: In a research note to investors this morning, JMP Securities’ Osha downgraded First Solar two notches, to Underperform from Outperform, as he believes recent policy developments in China that have “shaken global markets” will likely put pressure on margins past 2019. Pricing pressure is likely to accelerate outside of the U.S., and even in the U.S. pricing may decline as Chinese suppliers look to compensate for a sharp decline in expected demand at home, Osha contended. The analyst noted that China’s National Development and Reform Commission has cut feed-in-tariffs for both utility-scale and distributed-generation projects by 0.5RMB/KwH, and has also removed its previous target for utility-scale installations, eliminated new utility scale permits for now, and capped the amount of distributed generation eligible for the FIT at close to what has already been installed in 2018. Osha also lowered his price target on First Solar shares to $46 from $87. Yesterday, Bank of America Merrill Lynch analyst Julien Dumoulin-Smith downgraded First Solar to Neutral from Buy and cut his price target on the shares to $63 from $83. The analyst said he expects a “steep” drop in 2018 Chinese solar deployments, with further declines in 2019/2020 possible. The analyst also told investors that he expects the decline in Chinese demand and expanded supply to depress prices globally, and result in a “deluge” of Chinese imports into the U.S. market. Dumoulin-Smith now foresees First Solar’s margins declining from 35% in 2019 to 20% by 2022, but sees some near-term support from the existing order book and fixed-price contracts. FIRST SOLAR SELLOFF AN ‘ATTRACTIVE OPPORTUNITY: Still bullish on the stock, Roth Capital’s Shen told investors in a research note of his own that the current selloff in First Solar shares presents an “attractive buying opportunity.” The analyst argued that the Chinese policy changes are a “red herring” for First Solar, as he thinks they does not materially change 2018, 2019, and even 2020 economics. Additionally, Shen pointed out that his checks confirm that China’s policy changes potentially give fuel for the U.S. ITC to maintain the 201 beyond two years on the aggressive module average selling price, or ASP, collapse that is expected ahead. The amount of supply able to address the U.S. remains limited and the resulting global overcapacity will likely have a much more muted impact on U.S. module ASPs, he contended, adding that he believes First Solar priced its module ASPs for 2018, 2019, 2020, 2021 with a modest premium to “pre-Suniva” pricing, suggesting limited downside potential. Shen reiterated a Buy rating and $90 price target on First Solar shares. WHAT’S NOTABLE: Earlier this week, Roth Capital’s Shen downgraded JinkoSolar (JKS) and JA Solar (JASO) to Sell, and Amtech Systems (ASYS) and Daqo New Energy (DQ) to Neutral after China’s NEA released its Solar Management Plan, which the analyst believes is “much worse than expected” and will result in a “massive” net oversupply of cell capacity. PRICE ACTION: In afternoon trading, shares of First Solar have dropped about 7% to $54.20. Yesterday First Solar fell nearly 6% as well.
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