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Valuation for First Solar Inc

First Solar Incis more suitable for Asset Based valuation methods. This includes 1) Net-Net Working Capital 2) Tangible Book Value per Share. The Net-Net Working Capital of First Solar Incfor the quarter that ended in Sep. 2017 was 14.78.The Tangible Book Value per Share of First Solar Incfor the quarter that ended in Sep. 2017was 51.86.

Intrinsic Value: Projected FCF, Graham Number, and Earnings Power Value (EPV) are the combination valuation methods of Asset and Earnings Power. The Intrinsic Value: Projected FCF of First Solar Incfor today is 62.83.The Earnings Power Value (EPV) of First Solar Incfor the quarterended in Sep. 2017 was 1.55.

First Solar Inc Net-Net Working Capital

The Net-Net Working Capital of First Solar Inc for the quarter that ended in Sep. 2017 was 14.78

In calculating the Net-Net Working Capital (NNWC), Benjamin Graham assumed that a company’s accounts receivable is only worth 75% its value, its inventory is only worth 50% of its value, but its liabilities have to be paid in full. In addition, Graham believed that preferred stock belongs on the liability side of the balance sheet, not as part of capital and surplus. In "Security Analysis", preferred stock is dubbed "an imperfect creditorship position" that is best placed on the balance sheet alongside funded debt. This is a conservative way of estimating the company’s value.

Calculation:

    Net-Net Working Capital
    = (CashAndCashEquivalents + 0.75 * Acct. Rec. +0.5 * Inventory - Total Liabilities - Preferred Stock) / Shares Outstanding
    = (2718.617+ 0.75 * 344.645 + 0.5 * 217.555 - 1542.297 - 0) / 104.43
    = 14.78

For more information about NNWC, visit: Net-Net Working Capital

First Solar Inc Tangible Book Value per Share

The Tangible Book Value per Share of First Solar Inc for the quarter that ended in Sep. 2017 was 51.86

Calculation:

    Tangible Book Value per Share
    = (Total Equity-Preferred Stock - Intangibles) / Shares Outstanding
    = (5512.396 - 0 - 96.227) / 104.43
    = 51.86

Since intangibles such as goodwill cannot be sold when the company liquidates, tangible book value per share is considered more accurate in reflecting how much shareholders will receive when the company liquidates.

For more information about tangible book value per share, visit: Tangible Book Value per Share

First Solar Inc Intrinsic Value: Projected FCF

The Intrinsic Value: Projected FCF of First Solar Inc for today is 62.83

Since the intrinsic value calculations based on Discounted Cash Flow Intrinsic Value: DCF (FCF Based), or Discounted Earnings (DCE) Intrinsic Value: DCF (Earnings Based) cannot be applied to companies without consistent revenue and earnings, GuruFocus developed a valuation model based on normalized Free Cash Flow and Book Value of the company. The details of how we calculate the intrinsic value of stocks are described here.

This method smooths out the free cash flow over the past 6-7 years, multiplies the results by a growth multiple, and adds a portion of total equity.

Value = ((Growth Multiple)* Free Cash Flow(6 year avg) + 0.8* Total Equity(most recent))/ Shares Outstanding

In the case of negative total equity, the following formula is used (see the Total Equity section for the reason):

Value = ((Growth Multiple)* Free Cash Flow(6 year avg) + Total Equity(most recent)/0.8)/ Shares Outstanding


Calculation:

Here First Solar Inc' s FCF(6 year avg) is calculate as

First Solar Inc Quarterly Data
201506201509201512201603201606201609201612201703201706201709
total_freecashflow-49-246232-140-130215380-272484
201212201303201306201309201312201403201406201409201412201503
total_freecashflow288-5137306136-36956-118909-480
201112201203201206201209
total_freecashflow-107-141271-35

Add all the Free Cash Flow together and divide 6 will get First Solar Inc FCF(6 year avg) = 234.09

First Solar Inc's Intrinsic Value: Projected FCF for today is calculated as

    Intrinsic Value
    =(Growth Multiple*Free Cash Flow(6 year avg) + Total Equity(Sep17) * 0.8)/Shares Outstanding
    =(9.52035159596*234.087166667+5512.396*0.8)/105.660
    =62.83

First Solar Inc's Free Cash Flow Growth Multiple is 9.52035159596.

For more information about Intrinsic Value: Projected FCF, visit: Intrinsic Value: Projected FCF

First Solar Inc Median PS Value

The Median PS Value of First Solar Inc for today is 55.42

This valuation method assumes that the stock valuation will revert to its historical mean in terms of PS Ratio. The reason we use PS Ratio instead of PE Ratio or PB Ratio is because PS Ratio is independent of profit margin, and can be applied to a broader range of situations.

Calculation:

    Median PS Value
    = Revenue per Share (TTM)*PS Ratio (10y Median)
    = 28.419*1.95
    = 55.42

PS Ratio (10y Median) is 1.95.
First Solar Inc's revenue per share for the trailing twelve months (TTM) ended in Sep. 2017 was 3.631(Dec. 2016) + 8.541(Mar. 2017) + 5.959(Jun. 2017) + 10.288(Sep. 2017) = 28.42.

For more information about median ps value, visit: Median PS Value

First Solar Inc Peter Lynch Fair Value

The Peter Lynch Fair Value of First Solar Inc for today is 0.00

Peter Lynch Fair Value applies to growing companies. The ideal range for the growth rate is between 10 - 20% a year. Peter Lynch thinks that the fair PE Ratio for a growth company equals its growth rate, that is PEG = 1. The earnings here is trailing twelve month (TTM) earnings. The growth rate we use is the average growth rate for earnings per share over the past 5 years. If 5-Year Earnings Growth Rate is greater than 25% a year, we use 25.

Calculation:

    Peter Lynch Fair Value
    =PEG*5-Year EBITDA Growth Rate* EPS without NRI (TTM)
    =1** -4.21
    =0.00

5-Year Earnings Growth Rate is . If 5-Year Earnings Growth Rate is greater than 25% a year, we use 25..
First Solar Inc's EPS without NRI for the trailing twelve months (TTM) ended in Sep. 2017 was -6.75(Dec. 2016) + 0.09(Mar. 2017) + 0.5(Jun. 2017) + 1.95(Sep. 2017) = -4.21.

Please note that we use the 5-year average growth rate of EBITDA per share as the growth rate. EBITDA growth is subject to less manipulations than net earnings per share. In the calculation, PEG=1 because Peter Lynch thinks that the fair PE ratio of the growth stock is equal to its earnings growth rate.

For more information about Peter Lynch fair value, visit: Peter Lynch Fair Value

First Solar Inc Earnings Power Value (EPV)

The Earnings Power Value (EPV) of First Solar Inc for the quarter ended in Sep. 2017 was 1.55.

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

Assumption: Current profitability is sustainable.

Calculation:

Average of Last 20 QuartersLast Quarter
Revenue 3,382
DDA 224
Operating Margin % -0.57
SGA * 25% 65
Tax Rate % -12.43
Maintenance Capex 237
Cash and Cash Equivalents 2,719
Short-Term Debt 13
Long-Term Debt 330
Shares Outstanding (Diluted) 106

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating earnings" (EBIT).

2. Look at average margins over a business/Industry cycle: Average Operating Margin = -0.572%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins . Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenue as the sustainable revenue.
EPV analysis recognises that part of SGA expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SGA (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = 3381.977Mil, Average Operating Margins = -0.572%, Average Adjusted SGA = 65.0969,
therefore "normalized" EBIT = Sustainable Revenue * Average Operating Margins + Average Adjusted SGA = 3381.977* -0.572% +65.0969= 45.75199156Mil.

4. Multiply by one minus Average tax rate (nopat):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = -12.434%, and "normalized" EBIT = 45.75199156Mil,
therefore After-tax "normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 45.75199156* ( 1 - -12.434% ) = 51.4407941906Mil.

5. Add back excess depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess depreciation = Average DDA * % of excess depreciation (after tax at 1/2 average tax rate) = 223.814* 0.5 * -12.434% = -13.91451638Mil.
"normalized" Earnings = After-tax "normalized" EBIT + Excess depreciation = 51.4407941906+ -13.91451638= 37.5262778106Mil.

6. Adjusted for maintenance capital expenditure:

 First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
 Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
 Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
 Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditure as maintenance CAPEX.
First Solar Inc' s Average Maintenance CAPEX = 236.5786 Mil.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. First Solar Inc's current cash and cash equivalent = 2718.617Mil.
First Solar Inc's current interest bearing debt = Long-Term Debt + Short-Term Debt = 330.209 + 13.451 = 343.66 Mil.
First Solar Inc's current diluted shares outstanding = 105.660Mil.

First Solar Inc's Earnings Power Value (EPV) for the quarter ended in Sep. 2017 was calculated as:

EPV = ( ( Norm. Earnings - Maint. CAPEX) / WACC + CashandEquiv - Int. Bearing Debt) / SharesOutstanding
= ( ( 37.5263 - 236.5786 ) / 9% + 2718.617 - 343.66 ) / 105.660
= 1.55

Margin of Safety (EPV) = ( Earnings Power Value (EPV) - Current Price ) / Earnings Power Value (EPV)
= ( 1.54518768908- 60.18 ) / 1.54518768908
= -3794.67 %

For more information about EPV, visit: Earnings Power Value (EPV)



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