What: Shares of solar module manufacturer First Solar (NASDAQ:FSLR) vaulted higher by $3.84, or 7%, in Wednesday's trading session to close at $58.54 following upgrades from Northland Capital and Bank of America, and two price target increases from RBC Capital Markets and Needham & Co.
So what: The impetus for all four analyst actions in Wednesday's trading session related to the announcement late Monday that First Solar and SunPower (NASDAQ:SPWR) planned to form a "yieldco," or a dividend-based company to pool some of their solar assets. The advantage of a yieldco for First Solar and SunPower is the ability to dramatically reduce their taxes on the cash flow generated by their projects, as well as keep those assets owned without having to sell them. On the flip side, it could be a boon for investors as well, since yieldcos pay out a hearty chunk of their profits as a dividend.
Overall, Northland Capital upped First Solar to "market perform" from "underperform" and raised its price target by $5 to $51. Bank of America was a bit more generous, lifting the solar energy solutions company to "neutral" from "underperform" and placing a $58 price target on First Solar.
In terms of price hikes, Needham & Co. was the unicorn on Wall Street, at least on Wednesday, holding firm to its "buy" rating and lifting its price target, or fair valuation on First Solar, to $75 from $70. Needham's target implies up to 28% additional upside. RBC Capital Markets played things a lot safer, raising its price target $4 to $54.
Now what: Following the exciting announcement that'll entail the creation of a joint-venture yieldco between First Solar and SunPower, as well as multiple upgrades and price target increases – albeit three of the price targets being below where First Solar closed on Wednesday – the question investors have to ask here is whether or not First Solar is a buy.
Even though I've been a First Solar bear for a long time, I nearly pulled the trigger when shares briefly dipped below $40 in recent months. In spite of challenges faced globally by tightened government spending and weaker oil prices, which could delay projects or remove the urgency felt by businesses and/or governments to install solar energy systems, I believe First Solar's production efficiencies and size give it an inherent advantage over its peers.
Not to mention, First Solar ended its fiscal year, reported on Tuesday, with approximately $2 billion in cash and marketable securities. Compare this to its Chinese solar adversaries, which are drowning in debt, and it's easy to see why First Solar's prospects are much brighter.
If there is one downside here, it's that the relatively sparse details of the yieldco -- as in what assets from each company it'll entail -- could make earnings visibility difficult for the foreseeable future. We already witnessed this with First Solar's Q1 earnings guidance, which missed the consensus estimates by a mile.
Still, as long as global energy demand is on the rise and First Solar's balance sheet remains pristine, I see no reason that the company couldn't have modest upside from its current price.
Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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