Why Doesn't Goldman Sachs Like This Solar Stock?

Goldman Sachs doesn't like First Solar (NASDAQ: FSLR  ) . Goldman recently downgraded the company to sell, with a price target of $45, which is 13% below current levels. As reason for his downgrade to sell, the Goldman analyst said that First Solar has no exposure in the growing rooftop market, which he estimates to grow around 45% a year for the next three years. He also predicted that First Solar would see lower earnings.

Utility-scale solar still looks positive
The overall U.S. utility market growth is likely to remain weak. To combat global warming, the U.S. is becoming more energy efficient. Although electricity growth usually correlates with GDP growth, the correlation may no longer be the case now as the U.S. takes steps to conserve energy.

As an example of how better efficiency can lead to lower energy growth, utilities in California and the Northwest, which have monetary incentives to promote energy efficiency, have had electricity usage stay relatively the same in per capita terms while the rest of the country has seen a 50% rise in energy per capita over the past three decades. 

Despite lethargic utility market growth, utility-scale solar has a bright future. The U.S. utility market is really big. It's a $400 billion a year market, and solar energy only provides 1% of that total installed electricity capacity in the U.S. 

According to the U.S. Department of Energy's SunShot initiative, solar could make up 13.8% of total electric demand in the U.S. by 2030, with utility-scale solar contributing 209 GW, or almost two-thirds of solar's contribution. If that is the case, utility-scale solar companies will still see great growth ahead as solar costs trend lower. Another reason to be optimistic is that First Solar will continue to see strong revenue growth internationally as countries in the Middle East and Africa adopt solar.

Due to its vast expertise and experience, First Solar is still the premier utility scale company. Chinese companies JinkoSolar (NYSE: JKS  ) and Canadian Solar  (NASDAQ: CSIQ  ) may sell cheaper cost per watt panels but they don't have the same type of expertise in utility-scale solar as First Solar has. 

In addition to having the necessary expertise and experience, First Solar is likely to win some contracts simply because it is an American company in a field crowded with Chinese competitors. 

The bottom line
It is true that First Solar does not have any exposure to the rooftop solar market. That doesn't mean that First Solar can't get into the market, though. The company has over a billion in net cash. It can always buy its way into the rooftop market if it needs to. I think the concern is that First Solar is unwilling to do it because, if it did, the company would aggravate its utility customers.

I still like First Solar for the long term. The world will need more clean power. A lot of that will come from utility-scale solar, and First Solar is among the companies in the best position to provide that service. 

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  • Report this Comment On January 11, 2014, at 2:16 PM, 1dms wrote:

    The acquisition of Tetrasun should get them into the rooftop market. Production coming online 2nd half this year.

  • Report this Comment On January 12, 2014, at 9:12 AM, rangerffw2000 wrote:

    I too believe in solar for the long run but it would seem that not everyone thinks the large-scale utility market is booming. Read this:http://www.latimes.com/local/la-me-adv-solar-slowdown-2-2014...

    Rooftop market seems to have the traction right now.

  • Report this Comment On January 14, 2014, at 4:05 PM, drl9801 wrote:

    When searching CSIQ , this article showed up. It shouldn't be apart of the CSIQ interests . It makes the stock look bad and people panic thinking , Goldman Sachs doesn't like the stock. Bad timing I would say.

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