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First Solar Buy CTC
- 1. Buy Presentation: First Solar PresentationPrepared By: Peter Knight, Cailin Korts, Sam Sweeney, Allison Rhodes, Haoyu Han, Callahan Cohane, John Ruggiero, Brandon Xing, Kenneth Potts March 3rd, 2015
- 2. Thesis Investment Thesis 1 Stock Price(One Year) Solar is a growing industry that analysts are expecting to be one a key theme in the Technology Sector. Some of the other industries expected to grow are cloud computing and data security. We already have exposure to these growing industries with EMC and IBM. Our portfolio also has exposure to the more matured smart phone and computing industries with holding like AAPL, QCOM and VZ. The technology sector portfolio should have exposure to industries expecting long term growth combined with more matured holdings. As solar panels become more efficient, we are expecting an increase in demand from companies looking to make receive their energy from more sustainable and cost effective methods. Utility scales plants have also been proving a competitive on a cost basis with more standard electricity production methods, even without tax incentives. Since solar is a renewable energy, this group believes we should be investing in a sustainable future. We are representing the Ithaca College School of Business for Sustainable Enterprise, our portfolio should reflect the values of this institution. Revenue 2008-2014 0 500 1000 1500 2000 2500 3000 3500 4000 2008 2009 2010 2011 2012 2013 2014 Thousands($) First Solar Revenue
- 3. Industry Overview andRecent Trends  This quarter was the second largest quarter in history for solar growth, and SEIA and GTM Research predict another record-breaking year for 2014, with total installed capacity reaching three times the size of the market just three years ago.  As of Q3 2014, solar has made up more than a third (36%) of new electric generating capacity in US  The top 25 corporate users have more than doubled their solar capacity since 2012.  As the solar industry grows, so does its benefit to the economy. There are now nearly 174,000 solar workers in the U.S., a more than 20% increase over employment totals in 2014.  Growth in Q3 was led by the residential sector, which grew 58% over Q3 2014, and the utility-scale sector, which installed over 800 MW for the 3rd time in 12 months. – Source: http://www.seia.org/research-resources/us-solar-market-insight 2
- 4. Company Overview Company Overviewand Operations 3 Revenue Stream Breakdown  First Solar is the global leader in photovoltaic (PV) solar energy solutions.  Operations – Utility Scale Power Plant – AC Power Block – Modules – Module Plus – PV Project Geographic Sale Breakdown
- 5. Recent Telecom News First Solar raises bar for Cadmium Telluride (CdTe) solar panels with 21.5% efficiency record  Cadmium-telluride cell (lesser used than crystalline silicon) – Exceed goal of 22% by end of 2015 – Trend of rapid performance improvements  First Solar Jumps On $850 Million Partnership With Apple – 130 megawatt solar farm in California – 25 year agreement – Power Apple headquarters and stores  First Solar Commits 5 GW Capacity In India, Mulls Setting Up Manufacturing Unit – Portion of 20 GW total in India – Possible future plant based on demand  Yeildco to be formed in a joint venture with Sunpower. 4
- 6. Valuation Ratios Sector RatioAnalysis 5 Financial Strength Profitability Efficiency  Price to sales  First Solar: 1.6  Sector: 1.32   Price to Cash Flow  First Solar: 6.55  Sector: 55.08  Current Ratio  First Solar: 3.19  Sector: 3.16   Interest Coverage(TTM)  First Solar: 203.98  Sector: 0.00  Operating Margin(TTM)  First Solar: 9.0%  Sector: -9.77%   Net Profit Margin(TTM)  First Solar: 8.57  Sector: 7.79  Receivable Turnover  First Solar: 5.46  Sector: 7.79   Inventory Turnover  First Solar: 5.74  Sector: 4.02
- 7. Solar City Competitors 6 SunPower  Strengths: –First Mover, Google helps fund residential solar installations  Weakness: – Weak operating cash flow, high debt management risk – Net income significantly underperformed – Heavily based on government subsidies – Customers may not pay for their installed system, SCTY repossessed  Strengths: High efficiency and aesthetics  Weakness: – Gross Margin currently below its Chinese competitors (poor profit margin) – Stock price lost more than 34% its value while the industry average only declined 1%. – Badly burned by the popping of German and Italian solar bubble
- 8. Shunfeng International CleanEnergy Ltd (USD, CNY) Competitors 7 Canadian Solar Inc  Strength: – Large market in Asia and low cost  Weakness: – Hefty Tariffs – Low stock performance  Strength: – Robust revenue growth  Weakness: – Low Profit margin – High risk debt management – Disappointing stock performance Sun Edison  Strength: – Large stake in Indian solar market  Weakness: – Deteriorating net income – Low cash flow
- 9. Valuation Comparables Price Mkt.Cap EPS Forward EPS P/E Dividend Div./Yield Beta First Solar (FSLR) $61.42 5.88B 3.96 3.77 14.94 -- -- 1.64 SolarCity (SCTY) $51.31 5.04B -0.61 -6.27 -- -- -- 1.74 SunPower Corp (SPWR) $33.72 4.28B 1.91 1.66 17.96 -- -- 1.81 Canadian Solar (CISQ) $30.56 1.64B 3.39 4.44 9.25 -- -- 2.11 SunEdison (SUNE) $22.71 6.00B -4.42 -0.89 -- -- -- 2.15 8
- 10. Operating Comparables Total Debtto Assets Total Debt to Equity Return on Assets Return on Equity Return on Capital Pretax Margin EBITDA Margin FirstSolar(FSLR) 3.39% 4.55% 4.06% 5.87% 5.62% 9.14% $669.96M SolarCity(SCTY) 32.54% 111.18% -1.52% -8.22% -- -201.73% -$237.72M SunPower Corp (SPWR) 27.13% 73.67% 5.96% 18.56% 10.29% 11.29% $360.04M Canadian Solar (CISQ) 35.00% 152.46% 6.91% 35.74% 14.88% 15.62% -- SunEdison (SUNE) 62.60% 484.94% -12.98 -137.92 -15.96 -50.42 -179.40 9
- 11. Strength 10 Weakness • Economy ofscale • 28 manufactures world wide- 70,000 modules per day- grows by 2.2 gigawatts annually • Vertically integrated • Thin film semiconductor technology is more effective than the conventional silicon solar panels • Patents • Yield-co with Sun-Power • Bankability and financial credibility so they can offer system level warranties • Tax incentives in the US for businesses adapting solar power • Advanced grid integration technology • Solar industries first module recycling program • Highly Competitive • Some materials only have single suppliers • Production cost are greater than silicon style panels • Solar requires high demand concentrations • Structural imbalance between supply and demand for solar industry • Trying to operate without government subsidies • Little experience in rooftop solar applications • thin film technology has limited field history so estimates are uncertain • Largely dependent on third parties acquiring capital
- 12. Opportunity 11 Threat • Renewable energyrequirements • The price of solar isn’t nearly as volatile as fuel prices • Invest significant resources into R&D • Apple leading the solar tread in America • Beginning projects in Chile, Middle east, Northern Africa, South Africa, Australia, Japan and India • Ability to lower cost • Some competitors may have direct or indirect access to sovereign capital which allows them to operate at little to negative operating margins • Tariffs • There were 75 PV manufacturers worldwide in 2013 and exceeded global demand • Wind, geothermal, biomass, tidal technologies • Patents may or may not be issued and can be challenged • Currency, social unrest, interest rates • Power plants require hazardous materials • Ability to effectively balance production and demand
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- 14. Recommendation Since the clubplans to trim its position in Apple by 50%, we would like to put the profits from the sale and reinvest them in First Solar. Apple currently has a total market value of $2704.17 so after the trim we would have approximately $1352 to invest in First Solar. Currently 22 Shares of First Solar trading at 61.42 would come to a total cost of $1351.24. 13