First Solar, Inc. (NASDAQ:FSLR) is down almost 12% in the last two days over concerns with its solar panel reliability. The company announced that it might have to replace over 230,000 panels, but indicated that this should not have a profound impact on earnings, yet the company is expected to see EPS declines of 26% this year and 11% next year.
Year to date the company is down almost 40% on deteriorating fundamentals, with the key issue being demand due to tough financing conditions and reduced government incentives. The largest owner among the funds we track at the end of June was Coatue Management. Coatue owned almost 3 million shares at the end of 2Q, which was a new position for the firm. Philippe Laffont founded Coatue Management in 1999 after working at Julian Robertson’s Tiger Management.
Key competitors of First Solar include SunPower Corporation (NASDAQ:SPWR) and Trina Solar Limited (NYSE:TSL). Both of these companies, like First Solar, trade at incalculable P/E ratios given their negative earnings. However, both of the competitors trade around half the P/S ratio that First Solar trades at. As well, the smaller solar companies are not down quite as much year to date, with SunPower down 25% and Trina 30%.
SunPower has a strong pipeline of utility and power plant businesses. The company competed the acquisition of Tenesol in the first half of 2012, a wholly owned subsidiary of Total SA. At the close of the deal, Total acquired 18.6 million SunPower shares. The deal gives SunPower a key presence in Europe, while also making Total a 66% owner the company at the close of the transaction.
Trina has garnered little interest from funds, with York Capital Management being the largest share owner by far, even with an almost 50% position reduction from 1Q, and for good reason—the company is expected to see revenue decline by 31% in 2012. Also, Trina’s aggressive pricing is expected to put pressure on margins, with gross margins sinking to 9% in 2012, before rebounding to 14% in 2013.
More notably is the expected entry into First Solar’s market in 2013 by General Electric Company (NYSE:GE). Being a $240 billion plus company, GE has several big name funds as shareholders, from Seminole Capital, with 5.6% of their 2Q 13F invested, to George Soros and Ken Fisher. GE’s revenue is expected to be up 3% in 2012, driven by growth in energy infrastructure. However, operating margins are expected to decline as competition picks up in wind and thermal energy equipment industries. Although competition is already large in the solar industry, GE believes with its size and pricing power it will have cost production advantages over smaller solar panel production companies.
Chipotle Mexican Grill, Inc. (NYSE:CMG) is another notable stock down over 9% within the last week that Coatue has lost big money on—also see why David Einhorn has distaste for Chipotle. As of the end of June, Coatue had 4% of its 13F portfolio invested in Chipotle, owning over 560,000 shares. Chipotle is facing increased competition by companies mimicking its usage of higher quality foods, not to mention margin pressure due to expected food inflation. The only fund owning more shares at the end of 2Q was Jim Simons, but even Simons was reducing his position through 1Q by 25%.
Between the two companies, Coatue lost over $15 million last week, assuming the firm held the same number of shares as of the end of June. Both companies owned by Coatue aren’t expected to see rapid appreciation any time soon. One takeaway that investors should watch in the solar industry is fund interest in SunPower. SunPower’s solid pipeline, which is spread out over Europe and North America, gives the company key advantages over First Solar. As well, its prospects have convinced several funds to take new positions in the company, including Jim Simons and John Levin. While other funds increased their positions—Israel Englander upped his 1Q stake 200%, Cliff Asness 750% and D.E. Shaw 140%. For a complete look at which funds are holding these two stocks, continue reading here.