• Furthermore, why should any investor buy the First Solar management spin on Wednesday -- that the CEO ousting is a sign that the ship is being righted -- when it's coming from a former CEO who didn't want the job and has sold all his shares in the company?
  • One might also ask, given the dire situation in the solar sector, "Does anyone want the job that Gillette lost and that Ahearn didn't want but now has been forced to take again while a CEO search is done?"
  • Ticonderoga's Leming said that Ahearn is one of the smartest CEOs he has ever come across and that he'd be willing to believe Ahearn could "walk on water, part the Red Sea, etc.," but what neither Ahearn nor any First Solar official can do is make massive solar industry overcapacity go away, make module prices go back up, or make polysilicon prices go back up too, allowing First Solar to maintain a cost advantage over Chinese rivals offering crystalline silicon panels.

    And that leads to the only question that should matter for investors: Is First Solar a $3 earnings stock in 2013, or a $10 earnings stock in 2013? And if it's a $3 earnings stock, you put a six to eight 8 times multiple on it, and that means the "new and improved" First Solar is a $24 to $30 stock.

    It's got the high-priced power purchase agreements now -- though it's unclear if all of those will be effectively sold without federal loan guarantees -- but beyond those legacy PPAs for large-scale solar projects, the future is cloudy.

    "This industry won't slip beneath the waves and disappear, but it's 2 to 1 oversupplied and module prices are at a level where no one can make money, and First Solar is not the low-cost producer anymore with silicon where it is, and Ahearn can't do a thing about that. He can slash capital spending, he can cut expenses and batten down the hatches, and make sure they survive, and that's two to three years of recovery," Leming said. The analyst added, "It should be clear to anyone with a calculator, brain and pencil this company is at best breaking even in production of modules."

    Aaron Chew, analyst at Maxim Group, said it's fair to ask whether First Solar can even be in the module business in the future, or whether it has to be a project development company exclusively. And that leads directly into the question of whether it earns $3 annually or $10.

    Chew said that at this point no long-term investor should care about 2011 and should effectively write off 2012. Many solar analysts, even bulls, don't expect a recovery until mid-year 2012 for the sector. So when investors interested in the space see comments like the ones given by Yingli Green Energy to the press on Monday, saying a rebound is taking place in key markets, the best thing to do is tune out the management spin and look past it. Investors need to look through the next couple of years, and what matters is the level at which crystalline silicon pricing settles and what that implies for systems pricing, in the case of First Solar.

    "I assume First Solar never sells modules again and converts entirely to an EPC engineering, procurement and construction business. So what pricing and margins does that imply? They've guided to $7 mid-point of the guidance range in 2011, but that includes high priced PPA contracts and a healthier module market from the first half of the year," Chew said.

    Of the rally in First Solar shares on Wednesday, Maxim's Chew added, "I still think the longs puke this stock over the next week, and it could trade down by the end of the year." Currently, Chew has a hold rating on the stock with no price target. By the early afternoon on Wednesday, the 15% rise in First Solar shares had more than been cut in half.

    In a sense, First Solar put two worst-case scenarios to rest with its new 2011 guidance, even if it didn't answer any questions: It didn't guide down to $5, and it didn't keep its guidance at a level where aggressive accounting questions would linger.

    So maybe the accounting issues don't linger, but here's the issue that does: Is solar just another memory chip business with huge unit growth and no margins or intellectual property to speak of.

    "Growth until Kingdom Come doesn't mean it's the solar sector an investable story," Chew said.

    -- Written by Eric Rosenbaum from New York.

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