Axiom's Gordon Johnson, Noted Solar Bear, Upgrades First Solar To Buy

After last week’s Intersolar Conference, Axiom's Gordon Johnson expects First Solar, Inc.'s FSLR Q2 earnings to “dazzle."

“We are hearing that First Solar is delaying the ramp up of its Series 6 technology, and instead focusing on ramping back up its Series 4 technology. Given that we believe First Solar is selling modules at $.50 to $.60, and we are hearing rumblings that they are sold out through third quarter of 2018, we believe the company is going to show potentially significant upside to consensus estimates, which have not changed dramatically,” Johnson said on Benzinga’s PreMarket Prep.

In Axiom’s note, Johnson highlighted how the delays in Series 6 technology helps First Solar accommodate Section 201-based demand. Ultimately, these factors helped lead to a $51 price target.

Sell-Side Could Become Much More Optimistic

“Even though this is temporary," Johnson wrote, "as we have seen in solar over the past 10 years, even with temporary earnings upside, people and investors put multiples on those earnings. And given the underperformance of the solar sector vs. the broader market overall, we think you could have a pretty continued violent move higher in the stocks."

Currently, 14 sell-side analysts have placed hold ratings on First Solar.

“We see sell-side sentiment as skewed too negatively (a number of upgrades could be on tap),” Johnson wrote.

Section 201 Timing Should Help Drive The Bullish Market

“With the International Trade Commission (“ITC”) expected to make a determination of whether damage was done by 8/24/17, & a recommendation to the President by 10/23/17, investors could be left guessing on the final Section 201 outcome until November ’17, or as late as January ‘18.”

According to Johnson, since the market is in a bullish state, this could drive estimates on solar stocks even higher, particularly for First Solar, until a final decision is made.

Deutsche Bank Analyst Vishal Shah Reflects A Similar Sentiment

"If you recall, we have been highlighting some of the recent developments around section 201 trade case as well as stronger S6 execution as the key drivers for near term positive share price performance," Shah wrote. Looking at Q2, he expects upside to current estimates and for First Solar's momentum to continue in the near term as he set a $47 price target.

Additionally, Shah highlighted 10 reasons for his bullish remarks:

1. Upside to S4 margins
2. Recovering system margins
3. The S6 ramp is on track
4. A 2020 EPS of $3
5. Higher ROIC on S6 capacity compared to S4
6. Credible cost targets
7. Low risks around S6 expansion
8. Increase in S6 bookings over the next few quarters
9. Solid cash flow and balance sheet
10. The balance sheet project assets should create an additional buffer

Shares of First Solar were trading up 5.6 percent at $46.53 in Wednesday’s session.

To read the latest and exclusive financial news, check out the Benzinga Pro news wire.