It is possible to argue that without the yieldco formation the stock would still be plugging along at around $56 a share instead of trading around $60 Monday morning. Many of the steps the company has taken recently to reinvigorate its business will take a while to pay off.
First, there is the acquisition of a Chilean utility-scale solar company with a project pipeline of 1,000 megawatts. Then a commitment to 5,000 megawatts of capacity in India. Demand for solar is growing in both markets, but that growth is coming from a pretty low base.
First Solar also produced its first crystalline silicon photovoltaic (PV) modules in January in a Malaysian plant with an annual capacity of 100 megawatts. The company’s thin-film modules are, perhaps, too expensive for developing economies to purchase, and the cheaper crystalline silicon modules will be better able to compete with modules from the likes of Panasonic, Sanyo, Suniva and new partner SunPower.
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The yieldco formation helps the company fill a hole that might open up in its U.S. sales once the tax credits for solar installations expires at the end of 2016. The yieldco’s revenue stream does not depend on new installations, but only in collecting fees for providing electricity. It was a good move, but it could turn out to be about a wash if U.S. sales falter.
One thing to watch for here is whether First Solar and SunPower add new assets to the yieldco. The joint venture is only about equal in size to the yieldco SunEdison Inc. (NYSE: SUNE) formed last year. TerraForm Power Inc. (NASDAQ: TERP) currently holds nearly 800 megawatts of solar generation and recently added 521 megawatts of contracted wind and solar in its acquisition of First Wind Holdings.
If you discount the first two days following the announcement of the yieldco formation, First Solar’s stock price has risen about 3%. Maintaining that level of growth should be a lock. But there is nothing on the horizon that promises another jump of around 20% in the near future. Solar PV makers gave up their status as fast-growth stocks years ago.
That does not mean there aren’t opportunities for growth. First Solar appears to be casting a wide net for revenue opportunities. If the company can execute, the wider net should yield higher growth.
First Solar closed at $59.61 on Friday, and its 52-week trading range is $39.18 to $74.18. It has a consensus analyst target of $65, and the street high target is $81. Shares are trading at around $60.60 in Monday’s morning session.
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