Why First Solar’s Possible Exit Is Sinking More Than Just 8point3 Stock

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Solar energy yieldco 8point3 Energy Partners L.P. (NASDAQ: CAFD) reported better-than-expected net income after markets closed Wednesday, but the stock traded down more than 8% Thursday morning. The decline is related to announcements by the two partners in the joint venture, First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWR), of possible changes in their agreement.

First Solar intends to “reviewing alternatives for the sale of its interests” in 8point3, and SunPower said it is also exploring alternatives, “not limited to” seeking another partner. Neither company has announced any specific possibility.

In the case of First Solar, the company is marshaling its resources to speed its transition to the new Series 6 products. CEO Mark Widmar said:

Series 6 has the potential to be a transformational product and provide attractive returns to our shareholders. As we accelerate the cash conversion cycle from our systems business, we will further enable this important transition in our business. We want to thank SunPower for their partnership in forming 8point3, which has a portfolio of high-quality solar assets and proven operating performance. We look forward to working cooperatively with them through this process.

The effect on 8point3 would be to eliminate a source of projects that the yieldco could acquire and add to its portfolio that generates long-term cash flows and pays excess cash to investors as distributions. Without that stream of so-called dropdown projects, 8point3’s growth prospects are sharply reduced.

First Solar is taking some lumps as a result of the announcement as well. Credit Suisse cut the company’s price target from $29 to $25 with the following comment:

FSLR’s probable exit from the [general partnership] of its YieldCo entity 8point3 Energy Partners will enable the company to monetize 500 MWac of utility-scale solar assets on a timelier basis, and focus more on its module sales as it transitions to Series 6 technology. While this is positive, the pace at which module pricing is collapsing presents a challenge of significantly greater magnitude.

In its press release, SunPower said:

While SunPower believes the partnership still offers significant, long-term strategic value through the acquisition of additional high quality renewable power plants, distributed generation projects and associated cash flows, the company will undertake a review of its strategic alternatives given First Solar’s decision.

8point3 shares traded down about 6% Thursday morning, at $12.40 in a 52-week range of $11.51 to $15.99, and the low was posted this morning. The 12-month consensus price target on the shares is $16.88.

First Solar’s stock traded up about 0.1%, at $26.60 in a 52-week range of $25.56 to $63.09. The low was also posted this morning. The price target was $34.71.

SunPower traded at $6.22, up about 0.7%, in a 52-week range of $5.84 to $22.35. The stock’s consensus price target is $8.99.

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