First Solar: Merrill Turns Bearish After CEO's Surprise Exit

Bank of America/Merrill Lynch analyst Joe Osha this morning cut his rating on First Solar to Underpeform from Buy, citing the recent surprise exit of CEO Rob Gillette, as well intensifying pricing pressures. His new price target is $35, down from $85.

“We believe that pricing pressure in the company’s module business, combined with delayed revenue recognition in the project development business, could impact earnings more than expected,” he writes in a research note.

Osha slashed his 2012 EPS forecast to $4.35, from $9.84, while chopping his 2013 view to $6.23, from $11.56.

“Were in an information vacuum until the company completes its Q3 reporting, but we are substantially reducing our earnings estimates,” he writes. “We believe that the timing of project revenue recognition in 2012 is a bigger problem than previously expected. FSLRs direct business is an increasingly important driver of overall profitability, given the intense pricing pressure that the company is likely to see in 2012 in the indirect business. We are also concerned that the company may struggle to maintain high manufacturing utilization, which could put pressure on the rate of cost improvement.”

The analyst adds that he is not happy with the surprise CEO change. “We find Rob Gillettes departure troubling, made more so by the lack of a reasonable explanation from the companys board,” he writes. “We view the move as quite strange given that 1 we had no sense of imminent change having seen Mr. Gillette six weeks ago at [a recent Merrill] conference, and 2 Mr. Gillette had replaced a number of top managers with new hires.”

FSLR is down $3.86, or 7.2%, to $50.13.



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