3 days Ago
Drs Producoes/E+ via Getty Images Solar stocks peaked just as the 117 th Congress took control in early 2021. The blue wave from the 2020 elections was thought to be a boon for clean energy stocks, and there were some fundamental tailwinds, including the Inflation Reduction Act, American Rescue Plan Act, Infrastructure Investment and Jobs Act, and CHIPS and Science Act. Markets don’t always do what the political narrative dictates, however.
Look no further than price action in the Invesco Solar ETF ( TAN ). The fund peaked almost precisely on Inauguration Day in January 2021 and has gone on to lose about two-thirds of its value ahead of 2024’s general election date. Not all solar equities have turned out the lights on renewable energy bulls.
First Solar ( NASDAQ: FSLR ) has more than doubled since early 2021 and has trended higher ever since stimulus packages were inked in the middle of 2022. I reiterate a buy rating on FSLR. I see the stock as a compelling value while its technical situation is generally favorable amid a volatile political backdrop.
Solar Stocks Have Suffered Since Early 2021, FSLR Stands Out Though Stockcharts.com According to Bank of America Global Research, First Solar is the largest vertically integrated solar manufacturer in the US. The company provides photovoltaic (PV) solar energy solutions in the US, Japan, France, Canada, India, Australia, and internationally.
It uses a specialized cadmium telluride (thin film) based panel, which is different from most other panels which are silicon-based. Back in July, FSLR reported a solid set of quarterly results. Q2 GAAP EPS of $3.
25 topped the consensus target of $2.71 while revenue of $1 billion, up more than 23% from the same period a year earlier, was a material $66 million beat. The management team left its full-year guidance unchanged from what was announced earlier in the year.
It was FSLR’s fifth consecutive bottom-line beat and shares traded higher by 2.4% the following session. Looking closer, Q2 net income more than doubled on a year-on-year basis with strong module sales and increased average selling price per watt providing an operational lift.
Expected net cash of between $600 and $900 million offers a respectable liquidity cushion if we see worsening fundamental conditions, but with a 75.9 GW backlog through 2030, I expect the company’s top line to remain in good shape from a growth standpoint. Still, the election brings about uncertainty, and other risks include heightened competition from both domestic and global players and weaker consumer and business investment.
On the plus side, lower interest rates should help First Solar given its $622 million total debt position. Ahead of earnings next month, the options market has priced in a high 11.5% earnings-related stock price swing when analyzing the at-the-money straddle expiring soonest after the reporting date, according to data from Option Research & Technology Services (ORATS).
Seeking Alpha's data shows a consensus EPS figure of $3.23 (GAAP) on $1.1 billion of Q3 revenue.
On the earnings outlook , FSLR is expected to grow operating EPS at a very fast clip over the next several quarters. $13.50 of non-GAAP per-share earnings is forecast in 2024 while out-year estimates are now above $22.
EPS growth is then expected to slow, but still be very strong at 39% by 2026. Revenue forecasts are likewise robust, near 35% this year and declining to the high teens two years ahead. But with negative free cash flow in the past 12 months, I’d like to see some caution and conservatism by the firm on capex and concerning its cash flow from operations.
First Solar: Revenue, Earnings, Revisions Trends Seeking Alpha On valuation , if we assume a normalized EPS of $19 over the next 12 months and apply a market multiple of 21, then shares should be near $400. What’s more, if we look out to 2026 and assume $30 of operating EPS with a discounted 15x P/E, then we are talking about a $450 stock. Also consider that the stock’s forward non-GAAP PEG ratio is extremely attractive at just 0.
66, well below the sector median. The primary blemish is that the price-to-sales ratio is elevated compared to history, but the firm does not appear to be out-earning right now given where EPS estimates stand. First Solar: Strong EPS Growth Results in Attractive P/Es and PEG Seeking Alpha Compared to its peers , First Solar sports a soft valuation rating, but that is largely due to the P/S while the earnings-based valuation metrics are very compelling.
The growth story is what stands out right now, and profitability trends are robust with the $24 billion market cap Semiconductors industry company. While share-price momentum is stout, there are some risks on the chart that I will highlight later. Finally, sell-side EPS revisions have been somewhat soft since the July report, but that could help to temper expectations heading into the Q3 update next month.
Competitor Analysis Seeking Alpha Looking ahead, corporate event data provided by Wall Street Horizon show an unconfirmed Q3 2024 earnings date of Tuesday, October 29 after market close. No other volatility catalysts are seen on the calendar, though Seeking Alpha notes that First Solar will participate in the KeyBanc Capital Markets Energy Transition Symposium this Wednesday. Corporate Event Risk Calendar Wall Street Horizon The Technical Take With low earnings multiples and high growth expectations, FSLR’s technical chart is generally favorable, albeit with some cautionary signals.
Notice in the graph below that shares continue to trend higher, evidenced by a rising long-term 200-day moving average, while its RSI momentum oscillator at the top of the chart has worked off low levels following the major early-summer swoon. Shares are now rangebound in the short term with support between $195 and $202 while resistance is apparent between $240 and $244. Following a bullish rounded bottom pattern from late 2023 through earlier this year, I still see the bulls controlling the primary trend.
A breakout above $245 would result in the triggering of an upside-measured move price objective to near $295 – just shy of the mid-June peak above $300. Overall, FSLR is a volatile stock, but the broad trend is up with support about 15% below the current share price. FSLR: Big Swings, But Rising 200dma with Support Near $200 Stockcharts.
com The Bottom Line I have a buy rating on First Solar. I see the cyclical solar stock as undervalued with high top- and bottom-line growth figures looking out the next two years. While there is political risk, the chart is generally favorable for higher prices as FSLR’s Q3 report is in the offing.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha).
I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor.
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