(First Solar article updated for closing share price and volume)
TEMPE, Ariz. (
) -- Don't sell
. That was the takeaway message after a Webcast with analysts yesterday. First Solar provided just enough of a spending increase projection on a special Webcast yesterday to satisfy analysts who were questioning First Solar's future business model.
First Solar announced late in the day yesterday expected capital expenditures of $500 million-$550 million. The
First Solar projection was short of what Mark Bachman, analyst at Pacific Crest Securities was hoping to see -- $600 million to $700 million -- but it was much higher than the lowest Street estimates of $300 million.
It seems First Solar carefully found a middle ground between getting ahead of itself in terms of spending, while also satisfying questions from analysts about its ability to remain a growth stock with a low spending level.
Pacific Crest's Bachman, in particular, said the First Solar guidance of $500 million-$550 million, while falling short of the $700 million estimate at which he hoped First Solar would guide, was "just enough to keep long-only investors from selling the stock."
Still, the middle ground found by First Solar left questions on the table headed into 2010. Bachman continued: "We thought we would come away from the analyst event with a reason to either be sellers or buyers of First Solar. Instead, we saw the guidance as just enough to keep the long-only's invested and giving little reason to liquidate positions.
"Unfortunately ... we are stuck without a definitive stock call as management gave us just enough new information to question whether there is more upside in the embedded guidance. The guidance for 2010, except for the capex guidance, was essentially a nonevent, in our view."
The market reaction to the First Solar guidance showed a level of optimism equal to Bachman's guarded call. Shares of First Solar were up slightly in the pre-market on Thursday morning, but by the end of the day were marginally down from Thursday's closing price, at $135.73. Trading volume was higher than normal, with approximately 1 million more shares than the average in play on Thursday.
First Solar plans to spend $365 million for eight new manufacturing lines in Malaysia that will come on line in the first half of 2011. Pacific Crest, for one, had wanted double the amount of new manufacturing lines. However, it is well know that First Solar has to walk a fine line between capacity levels and the volatile solar market environment, and Pacific Crest acknowledged that in a research note after the webcast.
"Once again, management has demonstrated its conservative approach for managing future capacity," Bachman wrote.
First Solar guided to $6.05-$6.85 earnings per share in 2010, which, with First Solar's current price of $136.74, means First Solar is fairly valued, according to Pacific Crest.
Lazard Capital Markets
analyst Sanjay Shrestha provided a longer-term view of First Solar, writing in a research note that his 2011 estimates were unchanged at $9.20 earnings per share. "We feel incrementally more comfortable with 2010 being a trough earnings year for First Solar, with upside potential to our numbers for 2010 through higher shipments."
Bachman wanted First Solar to be more aggressive, but as Bachman conceded, based on First Solar's history, that might be asking too much of the only solar company in the S&P 500 Index.
-- Reported by Eric Rosenbaum in New York.
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