An Opportunity To Buy First Solar At Cheap Valuations

We reiterate our bullish stance on First Solar (FSLR) based on its impressive grid integration system, increasing conversion efficiency, high production and module efficiency. Its capacity utilization has considerably increased from 63% to 83% and cost per watt has decreased by $0.05 over the course of one quarter. The company has registered earnings of $1.27, which beats the analysts' estimates by $0.23 in the third quarter of 2012. The United States has imposed heavy duties on Chinese solar imports for the next five years, which will help FSLR to strengthen its market position in North America. The company's decline in average selling price and continuous drive to achieve grid parity are most important determinants for long term investors. The stock is attractive to investors due to its relatively cheap valuations. It is trading at EV/Revenue of 0.63x, at a discount when compared to the industry average of 0.7x. Its expected five year PEG ratio of 0.21 shows that investors can buy growth cheaply. We have calculated our 12-month target price of $97 (by using average four years EV/EBITDA multiple), with an upside of 320%. Therefore, we recommend investors to take a long position in the stock.

Our estimated 12-month target price is $97 with a considerable upside of 320 percent. FSLR is trading at a EV/Revenue of 0.63x, at a discount when compared to its competitors Yingli Green Energy and Suntech Power's EV/Revenue of 0.77x and 1.01x, respectively. On the other hand, it is trading at a premium when compared to its peers JA Solar (JASO) and Trina Solar's (TSL) EV/Revenue of 0.49x and 0.57x, respectively. The stock is trading at a price-to-sales ratio of 0.7x, EV/EBITDA of 3.9x and a forward price to earnings ratio of 5.9x. In our opinion, the company after capitalizing on its emerging markets growth would further improve its valuation multiples. Read More