Analyst: First Solar's Business Is Still 'Fundamentally Flawed'

Gordon Johnson still believes First Solar, Inc. FSLR's business is “fundamentally flawed,” despite his recent upgrade from Sell to Hold.

Johnson, the managing director of Axiom Capital, made the comment on Thursday’s PreMarket Prep show.

The upgrade happened because of a petition filed against imported solar panels. The petition, which was funded by a London-based hedge fund but filed on behalf of Suniva, a U.S.-based crystal and silicon company owned by a Chinese firm, would allow the U.S. to impose strong import restrictions on solar cells.

It demands a boost in foreign import pricing from $0.38 to $0.78, and Johnson said if a $0.56 compromise is made, First Solar’s stock could be worth $76.

“If the decision comes out no, that would be very bad for First Solar because we believe their core business is structurally flawed, and without protectionism, we think they will be competed completely out of the market,” Johnson said on the show.

Unfortunately, he doesn't perceive favorable odds of approval.

See Also: Will Shorts Hang On To First Solar?

“We don’t think this 201 petition is going to pass. We think the ITC is going to vote no, but we’ve pegged the probability at no/yes 60/40,” Johnson said, noting a risk-adjusted fair value today of $43. “This is not a fundamental call. We think First Solar’s business is structurally impaired, but with this dynamic out there, we think being short is foolish.”

The 180-day process and positive bias toward the stock add further risk to the short position.

First Solar was trading up 1.5 percent at time of publication. You can listen to Johnson's full analysis on First Solar here.