Wednesday, February 23, 2011

Take Profits on First Solar (FSLR), as Trina (TSL), Yingli (YGE), Suntech (STP) Pressure Margins

With the quarterly results of First Solar (FSLR) about to be released, Pacific Crest analyst Weston Twigg sees it as a potential time to take profits on the solar company, citing mounting margin pressures from competitors like Trina (NYSE:TSL) and Yingli (NYSE:YGE) and Suntech (NYSE:STP).

Twigg noted, "While First Solar continues to lead the industry in terms of manufacturing cost and margin profile, we are becoming more cautious. Top Chinese producers such as Trina (TSL), Yingli (YGE) and Suntech (STP) have established themselves as first-tier bankable module producers, and we believe aggressive capacity expansion and cost-reduction roadmaps could begin to contribute to First Solar’s margin pressure earlier than we originally expected, especially as additional polysilicon capacity comes online this year."

Twigg sees margins for solar modules dropping from 18 to 22 percent in 2011. “We see gross margin risk in First Solar’s module business because module ASPs could decline faster than the reduction in its manufacturing costs. Our analysis shows that industry module prices could decline about 18 to 22% in 2011 due to the substantial solar capacity coming online and reduced FiT (feed-in-tariff) policies,” said Twigg.

He expects earnings, which will be reported on Thursday, to come in at $1.72 a share on sales $634 million, compared to the consensus of $1.76 a share on sales of $648 million.

Gross margins are expected to decline from 51.1 percent in 2010 to 48.7 percent in 2011, according to Twigg.

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