First Solar, Inc. (FSLR) has cooled off in the last week or so, despite posting a monster fourth-quarter earnings beat that initially sent shares soaring. First Solar reported earnings of $1.60 per share in Q4 — nearly double the consensus — while its revenue tallied $942.3 million — also better than Wall Street had hoped.
The stock popped enough on the news to hit JPMorgan analyst Paul Coster’s price target, causing him to downgrade the stock from “Overweight” to “Neutral,” although he maintained his price target of $69. The downgrade then sent the stock lower, leaving shares right at the level of said price target.
Coster cited FSLR stock’s recent run — which totaled a nearly 9% year-to-date climb at the time vs. a nearly 6% decline for the broader market — as part of the reason for the bearish note. He had been overweight since June of 2013, with FSLR stock gaining more than 50% during that time period.
Put another way, he essentially said: It’s not the company — it’s the stock. And that’s an important distinction to make, for First Solar and other picks in a similar situation.
First Solar Is Still a Solid Company
There are some fundamental changes taking place which investors should be cognizant of, such as the fact that the Q4 earnings beat still represented a year-over-year decline on the top and bottom lines, and that First Solar just lowered its full-year 2016 sales guidance.
But even Coster said: “[First Solar] is probably the highest-quality stock in the solar space, so it pains us to step aside at this time and in this manner, but the risk-reward trade-off seems balanced here, in our view.” He added that the company’s fundamentals look solid through 2018 despite the lowered estimates. And he didn’t touch his earnings estimates for the company.
That’s promising, as it’s a bullish silver lining from an analyst who has been relatively lukewarm on the stock for some time. The price target of $69, for example, is below the consensus from the analyst community. The mean and median price targets are both higher, at around $77 and $74 respectively — good for upside of 7% and 11%.
On top of that, even the lowered guidance from First Solar fell within the range analysts had slated, and the company didn’t touch its earnings guidance for 2016, either.
Add it up and the downgrade isn’t as concerning considering it’s centered around valuation as opposed to deteriorating fundamentals or a shifting market. Valuation is certainly important — finding the right stock to buy is step one and figuring out when to buy it is step two.
When it comes to First Solar, step one remains unchanged despite the downgrade. In fact, the drop resulting from the downgrade may actually have presented an opportunity for folks who believe the bull case.
When you find a stock like this with strong fundamentals that’s just a bit frothy, wait for a selloff and pull the trigger.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
