Analyst Philip Shen of Roth Capital discussed First Solar, Inc. (NASDAQ:FSLR) following the company’s second quarter results, posting revenues of $934 million, beating consensus by $71 million, thanks to higher-than-anticipated external module shipments and systems revenue recognition. Additionally, FSLR’s EPS of $0.87 was higher than consensus estimates of $0.54.

Although FSLR posted strong earnings, investors are focused on where “earnings power could land in 2017.” Shen, in the near-term, sees downside for the stock “on the overcapacity negative sentiment and 2017 estimates going lower.” This idea of overcapacity picked up steam in early March when investors were speculating that FSLR would grow its capacity beyond 3GW. Since then, solar’s macro has changed and Shen believes that could lead to “a period of consolidation over the next 1.5 years” for solar.

Investors will judge the “winners” in solar based on balance sheet quality, technology, and brand. Shen believes that Fist Solar will be able to navigate these difficult times successfully. This is due to the analyst’s takeaway from the company’s Q2 report about how “quickly management has been able to react and respond to the threat of overcapacity and falling ASPs.”

First Solar’s ability to adapt was displayed over the last few months when it was able to easily transition to a new CEO. Additionally, FSLR called off capacity expansion and sped up its plans to switch its lines to series 5 to allow 1GW of Series 5 in 2017 starting production in the beginning of 2017. First Solar also recently announced its plan to improve the efficiencies of Series 5 to 390W from 260W and its plan to restructure with the intent of reducing operating expenses and COGS by $60-$80 million annually.

Despite these initiatives to adapt to challenging times, Shen still expects challenging times ahead for First Solar. Globally, ASP are falling and he expects module vendors to also be impacted. Shen sees near-term risk “until module ASPs and 2017 estimates find a bottom.”

First Solar’s management maintained its revenue guidance at $3.8-4 billion, but increased its margin to 18.5-19% due to projects directed to cost savings in Q2. The company also increased its EPS range to $4.20-$4.50 due to restructuring and asset impairments. Shen sees overcapacity weighing down FSLR’s EPS in 2017 and is decreasing it to $2.16 from $2.44.

Shen is maintaining his Buy rating on FSLR, while reducing the price target to $55 (from $70), marking a 25% increase from current levels.

According to TipRanks, the analyst has a yearly average loss of 15.8% and a 27% success rate. The analyst has a 18.9% average loss when recommending FSLR, and is ranked #4,004 out of 4,101 analysts.

TipRanks shows that out of the 11 analysts who rated FSLR in the last 3 months, 45% gave a Buy rating and 55% gave a Hold rating. The average 12-month price target for the stock is $58.50, marking a 32.62% upside from current levels.

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