First Solar's Sale of 8point3 May Come at a Discount

First Solar (FSLR) has announced it is reviewing alternatives for the sale of its interest in its yieldco 8point3 Energy Partners LP (CAFD) , but some analysts are concerned that the stake might sell on the cheap.

8point3 Energy is a joint venture between First Solar and SunPower (SPWR) set up to hold utility-scale solar power plant assets.

First Solar said after markets closed Wednesday, April 5, it is working with its financial and legal advisers on its options, and it will coordinate the review with its partner SunPower. 

But given that the market may be using 8point3's dividend yield as its primary valuation source, according to Axiom Capital Research analyst Gordon Johnson, his firm believes that if any third-party buyer emerges, they would likely value the target on a discounted-cash-flow basis. 

Due to this, Axiom suggests 8point3 would fetch a valuation between $9 and $10 per share on the open market, which would value the entire company at around $252 million. At the low end, Axiom's estimate would represent a 31% discount to where the company's shares closed Wednesday prior to First Solar's announcement.  

Moreover, the analyst points out that without support from First Solar, which accounts for roughly half of 8point3's expected 600 megawatts of right of first offer, or ROFO, dropdowns, their may be a well-founded concern about the yieldco's ability to continue growing.

And the lower the perceived growth rate of a yieldco, the higher the required dividend yield, and thus the lower the stock's price, according to Johnson.

Indeed, the market already seems concerned, as 8point3's shares were down 6% shortly after the market opened Thursday.  

Meanwhile, the move for First Solar is not very surprising to the bearish solar analyst, who suspects the parent has a desire to avoid having to pull their projects out of 8point3's ROFO pool as project economics in the U.S. are on the decline. 

First Solar said Wednesday the decision to review alternatives for 8point3 is part of a larger effort to strategically align the company's resources and capital in support of its transition to its new Series 6 product offering.

Still, First Solar's stock was down about 2% shortly after the open. The company's shares have been beaten down over the past year along with much of the solar industry. The company's stock, worth more than $60 per share a year ago, closed at $26.58 Wednesday. 

While not promising a transaction, First Solar said Wednesday that a sake of its interest in 8point3 would allow it to refocus it's resources on it's Series 6 objectives and allow for faster recycling of systems business capital. 

Such capital would support the planned transition to Series 6 production and provide additional funding for the expected deployment of multiple gigawatts of Series 6 capacity over the next several years, First Solar said in its release Wednesday.

The company also intends to speed up the return of capital from its systems business by selling projects earlier in the construction phase.

This includes the California Flats and Cuyama projects, which have been formally offered to 8point3, First Solar said, adding that it would sell the projects to third parties if 8point3 is unable to acquire them.

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