The trend of lower oil and gas prices actually has created lots of pressure for solar energy panel makers and for other makers of alternative and renewable energy. Despite weak guidance, and despite on analyst downgrade Thursday morning, Janney Capital Markets has decided to remain very positive on Shares of First Solar Inc. (NASDAQ: FSLR).

With First Solar shares down so much on Thursday after guidance, 24/7 Wall St. wanted to look closer at why this call remains so positive. After all, other analysts went the other way. Janney Capital Markets maintained its Buy rating and its $79 fair value target, despite the post-guidance drop taking shares down almost 9% to $53.62.

Janney’s report indicated that First Solar’s 2016 initial guidance actually exceeded its own expectations. The firm also raised its 2016 estimates as a result, and it considers the move down in the stock as being unwarranted. The firm is recommending to its clients that any pullback should be viewed as an opportunity to own the premier name in the solar industry, already trading at reasonable price levels.

First Solar now sees 2016 revenues of $3.9 billion to $4.1 billion. Janney was at $3.97 billion, and FactSet indicated consensus was at $4.032 billion. Janney now considers the $32 million differential meaningless against the aforementioned $4 billion guidance at the mid-point. EPS guidance for 2016 was $4.00 to $4.50, versus its target of $3.67 EPS forecast and versus consensus of $4.06.

The weakness may be that gross margin guidance of 16% to 18% didn’t meet consensus expectations, due to the planned sale of its minority interest in the Stateline project. The planned Stateline minority sale effectively brought guidance below consensus from the gross margin line down through the operating income line. Janney considers the accounting treatment of the anticipated earnings immaterial from a valuation perspective.

Janney’s report said:

While we didn’t change our revenue assumptions for 2016, we did make changes to account for the Stateline project sale under the equity in earnings method, which brought gross and operating margins down. We also revised our tax assumptions (lower) based on guidance, with the net result of raising our 2016 EPS forecast from $3.67 to $4.20. Our 2017 EPS forecast remains at $3.39. We use 2017 forecasts for valuation purposes.

We’re not sure why the shares sold off 7% yesterday in after hours trading, but we’ve noted that some solar and energy stocks have traded to what we consider extreme levels recently. Deviations from expectations seem to be magnified, and yesterday’s after hours activity would appear to be another representation of that phenomena. There’s plenty to like in FSLR’s guidance, including earnings and the anticipated 2016 YE net cash balance of $2.0B to $2.3B. We stress that this is initial guidance; an upward revision at some point in 2016 would not surprise us …

Janney’s sum-of-the-parts assigns $61 on the earnings power (2017 EPS forecast of $3.39 at an 18 P/E level), cash and securities per share of $17, and $1 of value for the ownership stake in 8point3 Energy Partners, for a total fair value of $79.

So, here is why we wanted to consider the positive call on Thursday. Needham downgraded First Solar to Hold from Buy. Other analyst calls on First Solar were as follows:

• Credit Suisse maintained its Neutral rating but lowered its price target to $65 from $70.
• JPMorgan maintained an Overweight rating but lowered its target to $62 from $64.
• Stifel maintained a Buy rating but lowered its target to $78 from $81.

One additional positive call was seen at Oppenheimer. That firm’s call reiterated its Outperform rating and lifted its price target — but only to $66 from $61.

First Solar shares traded down late Thursday morning by more than 9% to $53.10, versus a prior close of $58.85, and with a consensus analyst price target closer to $64.50 and a 52-week range $39.18 to $65.50.

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