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Guest Klothilde

First Solar (FSLR)

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OMG horrible miss, may the Lord have mercy on our souls. I'm getting myself a vodka martini now you guys. Won't be listening cuz I'm out with the girls. Keeo me posted. Luv.

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Not that horrible, in that they improved from Q1 (which really WAS horrible), but they still have issues.  Record shipments and still a loss.  Reminds me of the JKS/CSIQ "Profitless Prosperity" period of the last few years.

Gotta admit, I just don't see $60/share for this kind of financial performance.

DQ and CSIQ report by mid-August.  Let's see if they managed to eke out any profits.  If they did, it becomes REALLY difficult to justify the share price differences.

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Just skimmed the slides, nothing to worry about you guys. Solid bookings, 60% of 2021 booked, raising 2019 GM and operating income guidance. Cheers to all that you guys, this is a fantastic company!

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12 hours ago, solarpete said:

Gotta admit, I just don't see $60/share for this kind of financial performance.

I agree.  If Q1 and Q2 are indicative of future profitability then the stock should be trading near zero.

However if I take the implied EPS guidance for the second half of the year as indicative of future profitability (>$1.5 per quarter) this changes the picture completely.

So it depends on the perspective.  You seem to put more weight on the recent track record to assess the earnings power of the company and the market seems to put more weight on the transformation story and the EPS guidance.

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Went over the transcript.  One thing I don't like is that they started whining about the bifacial tariff exclusion and how it threatens their business and investments.  I think Widmar has a juicy conflict at hand.  On the one hand he needs to paint horror scenarios to pressure the government to reinstate the tariffs, and on the other hand he has to be frank to shareholders about improving fundamentals.  It will be hard to guide $6 or more in EPS for 2020 and at the same time claim that the business is "doomed" if tariffs for bifacial are not rapidly resinstated...

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2 hours ago, Klothilde said:

I agree.  If Q1 and Q2 are indicative of future profitability then the stock should be trading near zero.

However if I take the implied EPS guidance for the second half of the year as indicative of future profitability (>$1.5 per quarter) this changes the picture completely.

So it depends on the perspective.  You seem to put more weight on the recent track record to assess the earnings power of the company and the market seems to put more weight on the transformation story and the EPS guidance.

I do not think you can push the second half earnings forward. Much of that is already built legacy plants being sold, legacy projects in process contracts being sold and legacy module contracts being sold. Those dynamics change in future years as prices continue to drop. They will have similar impacts to gross and earnings that all solars have. The difference though is their level of shipments are not growing at the rates of others. That opens them to more risk as mass of scale will win out. Boutique business never grow much in values.

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1 hour ago, SCSolar said:

I do not think you can push the second half earnings forward. Much of that is already built legacy plants being sold, legacy projects in process contracts being sold and legacy module contracts being sold. Those dynamics change in future years as prices continue to drop. They will have similar impacts to gross and earnings that all solars have. The difference though is their level of shipments are not growing at the rates of others. That opens them to more risk as mass of scale will win out. Boutique business never grow much in values.

I disagree with you quite a bit.  I think the second half of 2019 is indicative of what's to come in 2020 and 2021 at least, i.e. while economics are largely protected by a) a huge module backlog at fixed prices and 2) tariffs.

The beauty of the Q3  / Q4 19 numbers is that the main profit driver is not projects but external S6 module sales.  In their Q4 18 con call presentation they illustrate the combined effect of rapidly increasing S6 volumes and rapidly decreasing CPW.  Put in all the information in a quarterly model and you'll see how S6 becomes the profit engine.

I agree with you that the glitter disappears once you take away contracts and tariffs, but this won't happen overnight.  FSLR will just have to make the most of its honeymoon to get the efficiency up to  20% and cost down to 15 cts.

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2 minutes ago, Klothilde said:

Was it this article that sent FSLR down 10% today?

Does anybody know what's going on?

The orange clown and China continuation from last week.  And all those analysts tripping over themselves to upgrade last week certainly pointed to "we wanna take profits" too.

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2 hours ago, Klothilde said:

Was it this article that sent FSLR down 10% today?

Does anybody know what's going on?

Markets are down big time. in the U.S. the overall discussions is fear of a trade war. This is triggered by Trumps tariff threats and now that China is devaluing its currency. When you couple this with record highs in the markets and the over exuberance in the face of a slowing economy, things hit a tipping point and the over volatile stocks like solars are being slammed more as they always do.

 

The markets had been pulling back to the 50 day moving averages.  Today the currency devalue in China spooked the trade wars and slammed the markets through the 50 day moving average and are heading to test the 200 day moving average. I have been short the markets for several weeks. I started taking positions when  the dow was at 26,500 and doubled my position when it broke 27,000. I have sold out my shorts today and will look for an entry point soon.

 

https://finance.yahoo.com/quote/^DJI/chart?p=^DJI#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%3D%3D

 

 

As an owner in FSLR that you are, you should be worried because the company is going to have even more difficuly selling overseas. It is becoming a 1 trick pony relying on the semi protected U.S. markets.

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1 hour ago, SCSolar said:

I started taking positions when  the dow was at 26,500 and doubled my position when it broke 27,000. I have sold out my shorts today and will look for an entry point soon.

Do you mean "entry point" going long the market (indexes)? Aren't you worried that carnage is just beginning to go long soon? Granted you went short right at or close to the top, so taking profit now might be prudent, but isn't lows  of Dec. 2018 (and maybe even so called "then some") are likely or at least very possible? Do you have a "point" where you're going long or are you planning play it by the ear?

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36 minutes ago, pg6solar said:

Do you mean "entry point" going long the market (indexes)? Aren't you worried that carnage is just beginning to go long soon? Granted you went short right at or close to the top, so taking profit now might be prudent, but isn't lows  of Dec. 2018 (and maybe even so called "then some") are likely or at least very possible? Do you have a "point" where you're going long or are you planning play it by the ear?

I took my short the market off the table to pocket the gains. I am leery of a bounce.  My shorts were DOG(1X the DOW)  and SQQQ(3x the Nasdaq). I was 2x into SQQQ over DOG at about 25% of my funds. SQQQ is a 3x the inverse of the market and thus a volatile risk.  I was about 55% cash and 10% in INTC and MSFT. If I go long, it will be in a 1x market ETF so any further drop has less impacts than the higher risks.

 

I would play an entry point of about 20-25% to be long the market  indices at around the 200 day average.

 

It is  very possible that the lows of 2018 get tested.  That is another 2700 points. We are down 1600 so far from the highs. You would have to see the 50 day cross the 200 day in order to see that level of collapse imho.

 

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SQQQ hit $48 in May on Mexico "tariffs", granted it came from higher level than under $31 SQQQ hit last week. This situation, however, is much more serious. 20% down from here on NASDAQ (same move as last December), puts SQQQ at about $60! I'll be OK with that and mid $40s for SPXU. 

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7 minutes ago, pg6solar said:

SQQQ hit $48 in May on Mexico "tariffs", granted it came from higher level than under $31 SQQQ hit last week. This situation, however, is much more serious. 20% down from here on NASDAQ (same move as last December), puts SQQQ at about $60! I'll be OK with that and mid $40s for SPXU. 

In entered qqq, spy and udow when the dow was down around 900. Appx 10% of my portfolio. This is short term depending on market reads.

 

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3 hours ago, SCSolar said:

In entered qqq, spy and udow when the dow was down around 900. Appx 10% of my portfolio. This is short term depending on market reads.

 

Hopefully you got out at the close.

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10 hours ago, pg6solar said:

Hopefully you got out at the close.

I have not. It is a small % so I will feel the markets out. I am expecting a bounce today.

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17 hours ago, SCSolar said:

As an owner in FSLR that you are, you should be worried because the company is going to have even more difficuly selling overseas. It is becoming a 1 trick pony relying on the semi protected U.S. markets.

I'll start worrying when I see that they start lagging behind in cost per watt.  But with S6 at 20 cents and heading to 15 cents it's really hard to panic.

Also bear in mind that First has enough cash to buy two junkosolars at least, i.e. the 1 trick pony has enough cash to buy the whole circus.

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Check this out from the latest 10-Q:

"...As of June 30, 2019 , we had entered into contracts with customers for the future sale of 10.2 GW DC of solar modules for an aggregate transaction price of $3.5 billion..."

If those 10.2GW in modules are produced at an average cpw of 20 cents then you get $1460M in gross profit.  That's the market cap of another two junkosolars right there.

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2 hours ago, SCSolar said:

I have not. It is a small % so I will feel the markets out. I am expecting a bounce today.

And you're getting it.

What a difference 12 hours make - last evening AH, a strong "bounce" was to the down side with over 1M shares of SQQQ traded with high above $42. Yuan fixing stronger than 7 reversed it.

Edited by pg6solar

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3 hours ago, pg6solar said:

And you're getting it.

What a difference 12 hours make - last evening AH, a strong "bounce" was to the down side with over 1M shares of SQQQ traded with high above $42. Yuan fixing stronger than 7 reversed it.

exited after getting home from the gm and finding the markets have given back a large portion of the open. Nice little 18 hour gain.

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3 hours ago, Klothilde said:

Check this out from the latest 10-Q:

"...As of June 30, 2019 , we had entered into contracts with customers for the future sale of 10.2 GW DC of solar modules for an aggregate transaction price of $3.5 billion..."

If those 10.2GW in modules are produced at an average cpw of 20 cents then you get $1460M in gross profit.  That's the market cap of another two junkosolars right there.

since those contracts are over the course of 3 years, you can cut that profit down ti size with Opex running at a cool $1Billion plus.

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15 hours ago, SCSolar said:

since those contracts are over the course of 3 years, you can cut that profit down ti size with Opex running at a cool $1Billion plus.

imo the backlog volume corresponds to approx. 8 quarters and would be offset by roughly $600M in OPEX.  Also the above does not include GP from projects which may add $200-$300 in GP for two years. 

Imo it is becoming increasingly transparent that FSLR is heading towards a string of extremely profitable quarters, so I don't see anything to worry about in the short/mid term.  

My concern is their cost efficiency in the long run (2022+) vs CN competition but the metrics from the ramp are all very encouraging.  

By the way, what's your estimate for their 2020 EPS?

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If you're in FSLR because of the prospects of near-term profits, you really should check out ENPH as well.  DYOD (do your own diligence), but that's their story in spades.

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17 hours ago, solarpete said:

If you're in FSLR because of the prospects of near-term profits, you really should check out ENPH as well.  DYOD (do your own diligence), but that's their story in spades.

You know very well I'm in for the long haul with FSLR.  I just pointed out the short/mid term potential of FSLR simply because some people here talk like the company was about to file Chapter 11.  In terms of ENPH I don't know enough about the inverter space to feel comfortable investing.

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I didn't say abandon your FSLR position.  You've obviously done quite a bit of research into their financials and feel comfortable with your risk/reward ratio with them.  I'm saying if you like their story, ENPH's is quite similar--better, in fact, because they're already profitable, and their profits are only expected to grow, at double, if not triple-digit rates.  They literally can't meet demand right now, but have recently expanded their production capacity to address that, plus they have new technology in late stages of development that will decrease their costs and thereby drive future margins.  Sound familiar?

My recommendation is purely from a diversification and risk-management point of view--I'd rather own two great companies than just one, because you never know what might happen to any one individual company.  Take it for what you paid for it (grin)....

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Does ENPH have a sustainable competitive advantage?

P.D. Just saw that the thing has a PE ratio of 30+ relative to 2020 EPS consensus.  WTF? weren't you allergic to expensive stocks?

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They do for now (have a competitive advantage).  Their inverters are "smart" inverters that tie together energy production (from panels) and storage (from batteries).  From what I understand, their current inverters (IQ7) are already cheaper and more reliable than their competition (mainly SEDG), and they had to add a new production line to at least try to keep up with demand (how's that for a nice problem to have?).  Their next generation (IQ8, due out late this year/early next year) will add functionality AND reduce the component count, further increasing reliability and decreasing production costs.  Of course, inverter technology is widespread, so I wouldn't say they have a moat.  But they've got a 2-year head start on the competition for what IQ8 can do, so they should be able to enjoy the position of industry leader for a while.

Yes, they are expensive, so caution is warranted.  But I think estimates of $1 EPS for all of 2020 are low.  They just made 18c last quarter, and that's expected to double next quarter.  I think it's reasonable to assume somewhere around 50c per quarter next year, probably continuing to grow throughout the year.  That makes the P/E more reasonable.  Read the transcript of their recent earnings call and look at what their CEO is saying in terms of demand for their products.  And BTW, this CEO has been conservative, if anything, in his predictions.  Their previous one was not--but they're a turnaround story, and this CEO is one reason why.

They've quintupled (!) this year already, and normally I'm VERY leery of investing in a company at an all-time high.  And I keep my exposure at the high price levels limited--but I aggressively increase my position on any dips (and promptly sell those trading shares when the price increases again).  Compared to FSLR, they're still cheap, and they should enjoy at least as much growth from their IQ8 as FSLR should from their Series 6, at least for the next couple of years.

If I HAD to put all of my eggs in one buy-and-hold basket (which I of course don't do), this would be it, even at current price levels, based on their proven growth last year and their expected growth the next few years.  I don't think I've ever found a more compelling story in any stock I've ever looked at.  I've traded them very successfully this year (not hard to do in a stock that's quintupled during that time), and I look forward to continuing to do that for at least 2 more years.

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