Deutsche Bank has been highlighting some of the recent developments around section 201 trade case as well as stronger S6 execution as the key drivers for near term positive share price performance. Although initial feedback on S6 execution has been positive, Deutsche Bank acknowledges that some risks still remain and further evidence of successful S6 ramp would be required for sustained outperformance. Maintain Hold, raise PT to $47 (driven by revised estimates and multiple).
Deutsche Bank sees upside to Q2 estimates, primarily driven by better than expected component margins as well as revenue recognition of Switch Station project (not baked into guidance). Deutsche Bank also believes estimates could move meaningfully higher if the company were to recognize $55m tax benefit (not baked into guidance). The company recently sold 180MW Switch Station project, which Deutsche Bank estimates could generate roughly $200-250m of revenue upside and 25-30c of earnings upside. Moreover, one-time tax benefit could drive additional 25- 30c EPS upside resulting in Q2 earnings of ~25-60c vs current consensus of break-even.
Deutsche Bank analysis suggests that a 5c improvement in module pricing on ~1GW of S4 capacity could result in $50m of incremental gross profit or ~40c positive EPS impact for FY17. Deutsche Bank also sees upside to FY17 estimates as checks indicate that the company has been actively looking to monetize sale of 250MW India projects (not included in guidance). Deutsche Bank believes FY17 EPS could end up being close to $1.2 vs current guide of 50c at the midpoint.
FSLR was going to start shipping S6 modules to international customers in order to solicit feedback. Deutsche Bank expects the company to provide an update on the progress in these markets. Deutsche Bank also expects the company to provide additional details on capex/cost outlook for S6 capacity – capex was tracking better than previous expectations, whereas the company still needed to do some work on the cost front (especially with glass suppliers).