First Solar's 2017 Headwinds Leave Morgan Stanley Cautious

Morgan Stanley’s Stephen Byrd believes First Solar, Inc. FSLR's technology advantage suggests the company has the potential for resilient module margins in the longer term.

Byrd maintains an Equal-Weight rating on the company, while lowering the price target from $63 to $59.

Longer-Term Advantage

“Based on the company's module performance benefits in hot and humid climates and an aggressive efficiency improvement roadmap, we see the potential for a $0.05-0.08/W technical advantage by 2020 for FSLR's panels relative to conventional c-Si panels,” the analyst mentioned.

Compared to the industry average, Byrd believes this offers a significant advantage to First Solar and is likely to drive strong sales volumes and higher than average margins.

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Cautious Stance

However, the analyst also expressed caution regarding the “regulation-driven slowdown” in the United States expected in 2017, especially given the company’s high focus on the domestic large scale market.

“We expect First Solar to face a very difficult 2017 following a pull-forward of demand into 2016 ahead of the anticipated decline in the ITC,” Byrd stated

In addition, the analyst pointed out that the company was targeting system sales of 1GW in 2017, a decline from the 2.4GW in 2016. The remaining volume is expected to be sold mostly as standalone modules, which command materially lower selling prices than full systems.

Therefore, Byrd expects First Solar to see a 50 percent decline in earnings in 2017.

At time of writing, First Solar was up 1.91 percent on the day, trading at $48.67.

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