Thursday, June 5, 2008

More on First Solar and XTO

I've done some additional fundamental research into FSLR's CdTe solar panel technology and I'm increasing my XTO long:FSLR short ratio to 4:1 from 2:1. While the FSLR P/E ratio of 100 seems stratospheric and its future earnings potential, even as a best-of-breed company, seems priced into the stock, the competitive advantages of FSLR's technology are compelling enough to change the hedging ratio.

CEO Ahearn's sale of half his shares was a bonehead move, but I'm not convinced it signals dark days ahead for FSLR.

Fundamentally FSLR seems to be the only company to have large scale commercialized thin-film CdTe panel production at prices which are even remotely competitive without government subsidies. In fact with an all-in cost per peak watt of approximately $1.30, FSLR's costs are far lower than any other commercial a-Si or multicrystalline Si panel manufacturer (Google funded NanoSolar claims to have a CIGS-based panel with sub-$1/peak watt manufacturing costs, but I'll reserve judgment until there's full scale production). The recent drastic reduction of government solar subsidies in Spain and Germany, two of the largest global solar markets, may make FSLR's manufacturing cost advantage even more valuable.

On another note, West Texas Intermediate Crude Oil (CL) is up today on ECB inflation expectations. The PV solar sector is likewise in the black.

With the 2:1 hedge ratio and entrance into an FSLR short at $245 for the hedge, I'm in the black for the day, though not as much as I would be without the hedge. I've increased my XTO:FSLR hedging ratio to 4:1.

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