First Solar Inc is on the verge of being included in the flagship S&P 500 index, a sign that alternative energy companies are now a mainstream investment.
The news has buoyed First Solar, which has been on a rough ride since the global recession slackened demand for renewable energy projects, and a drop in polysilicon prices raised concerns that the company could lose some of its edge as low-cost leader.
First Solar shares have been especially volatile in 2008, with the stock losing 42 percent of its value from May to September, falling from $202.40 per share to $118.32.
Since September, however, First Solar's stock has rallied, gaining 26 percent and closing at $148.58 on Monday on the Nasdaq.
Would inclusion in the S&P 500 and the long-term positive outlook for solar power help build a sustained rally in First Solar?
Three analysts weigh in:
BILL ONG, MANAGING DIRECTOR, MERRIMAN CURHAN FORD:
I like the stock at this level. I think it's going to go higher. In the near term there is certainly some positive fundamental catalysts that's driving First Solar.
We have definitely seen polysilicon prices stabilize in the low $60 per kilogram range. That also bodes well. I also see some improved visibility in terms of some near-term pickup in demand taking place in Europe as well as in China. That's a couple of key catalysts that's going to drive the stock higher as we go into earnings.
The stock's going to be volatile in the intermediate terms. The macro (economic) issue is somewhat volatile. You are also seeing increased supply, which is also going to create some volatility in the stock.
On a longer term basis, over the next couple of years, First Solar is still well positioned to benefit. They are the lowest cost leader in terms of thin films, they are a well run, well managed company.
CHRISTINE HERSEY, ANALYST WITH WEDBUSH MORGAN
I think they're well positioned to win some large projects, particularly ones in the U.S. that may actually begin in 2010 such as the Southern California Edison (250 MW) project and the (500 MW) Sempra Energy project ...
Overall financing conditions for solar projects are going to improve over the next six months. I think developers will find it easier to get capital for mid-size to large projects. First Solar has experience in those size projects and because First Solar offers a lower cost module they'll do well in a competitive process ...
Even though there is intense price competition and the Chinese module manufacturers have been lowering their prices to gain market share, First Solar is still the lowest cost producer and they have more room to maneuver in a price war.
PAUL LEMING, ANALYST WITH SOLEIL SECURITIES
Basically I've got the view that it's not a good time to buy any player in the solar group whether it's First Solar, SunPower or Suntech. I've got a negative view on the entire group these days (because of) fundamental oversupply -- too much capacity to produce solar panels chasing not enough demand.
I believe prices and margins have been squeezed over the last year. They are, in my view, going to continue to be squeezed through the end of this year and into the first half of 2010 ... In a sense what's going on is the industry is trying to do a year's worth of business in three or four months. Not much gets shipped or installed in the first half of the year and then there's this crazy race to get systems installed and hooked up to the grid by year end to qualify for the feed-in tariffs in Germany.
(Reporting by Poornima Gupta and Laura Isensee; Editing by Gary Hill)