MORGANSTANLEYRESEARCHNORTHAMERICAMorganStanley&Co.IncorporatedSmittiponSrethapramoteSmittipon.Srethapramote@morganstanley.com+12127613914JoshuaParadiseJoshua.Paradise@morganstanley.com+12127614014March24,2010IndustryViewCleanTechIn-LineSolar:StrongDemand,NewCoverageSlowerASPDeclines;FavorIndustryIndustryViewCleanTechIn-LineFSLRonScaleandCostsTicker(Price)RatingPriceTargetPotentialReturnFSLR($109)Overweight$15037%ESLR($1.22)Equal-weightNANAWeareinitiatingcoverageofthreeUSsolarstocksENER($7.62)Underweight$5–34%aspartofournewcleantechindustrycoverage.Source:MorganStanleyResearchPricedasofMarch22,2010Cross-currentsinthegroupdictateourIn-Lineview.WeEPSEstimatesexpecta3-yearCAGRof35%insolarphotovoltaicFiscalYearending(1)20092010E2011E2012Einstallations,offsetbyacontinuedbutmodest10–15%FirstSolarannualdropinmoduleASPs.Selectcompanies,ModelWareEPS7.536.418.399.83includingFSLR,shouldseehighergrowthandlessASPImpliedP/E18.017.113.011.1pressureby1)offeringcustomersattractiveeconomics,ConsensusEPS7.536.157.267.702)sellingbankableproducts(forwhichcustomerscanEvergreenSolarobtainfinancing),and3)beingpositionedforverticalModelWareEPS(0.67)(0.17)(0.15)(0.06)integrationtooptimizeproductionplanning.ConsensusEPS(0.78)(0.31)(0.06)0.11EnergyConversionDevicesFirstSolar(FSLR,Overweight,target$150)isourModelWareEPS0.41(2.52)(1.96)(1.09)ConsensusEPS0.29(2.55)(1.35)(1.28)toppick;our2011eEPSis~16%aboveconsensus.WebelievethemarketistoopessimisticonFirstSolar’sFiscalyearsend12/31forFSLR,ESLR;6/30forENERSource:MorganStanleyResearchestimatesASPdevelopment.Basedonconversationswiththecompany’scustomersintheUSandEurope,webelieveFSLRMaintainsCostAdvantageandHealthyFirstSolarwillbeabletorealizehighermoduleASPsMarginsasSolarBecomesCostCompetitivethanthemarketexpects.ThisisbecausecustomersareModuleCostperWattFSLRGrossMargin(%)abletoobtainbetterfinancingtoinstallFirstSolar$4.0080modulesthanpeerproductsthatarelesstested.Themarketcouldalsobeunderestimating