Gordon Johnson Initiates Coverage On First Solar, Solaredge

A bleak and sunless winter hasn’t scuffed the shine of solars.

But firms are facing threats in other forms, both internal and external. Considering their diverse circumstances, two stocks caught opposite ratings from an expert Thursday.

The Rating

Vertical Group analyst Gordon Johnson initiated coverage on First Solar, Inc. FSLR with a Buy and Solaredge Technologies Inc SEDG with a Sell.

The Thesis

The Solaredge cynicism is justified in part by expected margin inflexibility.

“In a nutshell, our estimates imply SEDG’s gross margins may peak in 2018; but the increase in OPEX suggests EBITDA may have already peaked,” Johnson said in a note.

The analyst said he anticipates an accelerated decline in average selling prices compounded by irreducible manufacturing costs and heightened operating expenses, the last of which is bolstered by upcoming expansions in payroll and research and development.

Solaredge's ability to seize share in new and existing markets, coupled with delayed emergence of discount Chinese competitors, has “positioned the company as the best of a bad bunch," Johnson said. 

On the bullish side, First Solar is “decidedly undervalued” for its portfolio of project assets and, despite the firm’s 76-percent rise over the last six months, is expected to outperform peers over the next year, the analyst said. 

Price Action

At the time of publication, First Solar was trading up 7.44 percent at $74.82, and Solaredge was up 0.36 percent at $36.73. 

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