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As the Dubai COP Climate Meeting looms against the backdrop of a year marked by catastrophic climate events, solar power remains one of the most popular forms of renewable energy. Nevertheless, it was a tough year for solar stocks in 2023, as a strapped U.S. consumer grappled with inflation, and higher interest rates created a tougher lending environment for growth-fueled companies.
That said, the market for solar power is expected to increase. According to this report, the global solar power market is projected to clock an impressive CAGR of 14.9% between 2023 and 2032, reaching roughly $678.81 billion over the next decade.
With this in mind, First Solar (FSLR) is one top-rated name in the clean energy group that remains well-positioned to benefit from an improving macro environment going into the year ahead. Let's look at some of the reasons why.
About First Solar
Founded at the turn of the century in 1999 and based out of Arizona, First Solar (FSLR) is a multinational solar panel manufacturer with facilities in the U.S., Malaysia, and Vietnam. The company pioneered the development of Cadmium Telluride (CdTe) thin-film photovoltaic (PV) modules, which offer several advantages over traditional silicon-based modules, including higher efficiency, lower cost, and greater durability.
1. FSLR Stock Outperforms Solar Peers
First Solar stock, which currently commands a market cap of about $16.85 billion, is up only about 7% on a YTD basis. That lags the performance of both the tech-focused Nasdaq Composite ($NASX) and the broad-based S&P 500 Index ($SPX) so far this year.
However, compared to some of its solar stock peers, FSLR's share price performance looks quite resilient. While SunPower (SPWR) has corrected by more than 73% in 2023, Solaredge Technologies (SEDG) has fallen by 70%, and Enphase Energy (ENPH) is off almost 60%.
Additionally, FSLR recently made a successful test of support around $130, which marks a 50% Fibonacci retracement of the rally from its 2020 low to its 2023 high.
First Solar stock also looks reasonably valued at current levels. The stock is priced at 19x forward EPS, which is below the sector median and its own 5-year average - both around 22x.
2. Q3 Earnings Beat and Raise
First Solar's latest results for Q3 2023 were marked by impressive growth in revenues and a bottom-line beat. The company reported revenues of $801.1 million, up 27.4% from the previous year - but slightly short of consensus estimates. The solar specialist swung to a per-share profit of $2.50 from a year-ago loss of $0.46 per share, and easily beat the expected EPS of $2.04.
The company's liquidity position also remained robust, as it closed the quarter with a cash balance of $1.5 billion, well above its long-term debt levels of $464 million.
Looking ahead, First Solar raised the midpoint of its fiscal 2023 EPS guidance to $7.60 from $7.50, with the overall range upwardly revised to $7.20-$8.00.
The company's current backlog stands at a record of 81.8 GW, which has been sold entirely through 2030, including India, and up to 2026 excluding India. This provides substantial revenue visibility for the company.
3. Growth Forecasts Are Bullish
Projected earnings growth for First Solar is expected to stay hot. After reporting $7.98 per share in fiscal 2023, Wall Street is expecting 65% EPS growth in fiscal 2024 to $13.19 per share.
FSLR's projected EPS growth, along with its expected forward revenue growth of 16%, stands well above the sector median. Likewise, the company's expected long-term CAGR for EPS growth is 37.7%, compared to the 13% industry norm.
4. Analysts See More Upside Ahead
Analysts hold a high opinion of First Solar stock, based on the consensus “Strong Buy” rating and mean target price of $232.03. This denotes expected upside potential of about 45% from current levels.
Out of 24 analysts covering the stock, 19 have a “Strong Buy” rating (up from 18 a month ago), and five have a “Hold” rating.
5. Fed Rate Cuts Could Be Supportive
Recent economic data has continued to support the case for an eventual Fed pivot in 2024. For example, U.S. GDP growth topped expectations in the third quarter, while the central bank's preferred inflation gauge shows evidence of moderating price pressures.
As a result, the CME FedWatch tool is currently pricing in about 97% odds that the Fed's benchmark rate will be at least 25 basis points lower by the time the June 2024 meeting wraps up. Barring any major economic catastrophes, the increasing likelihood of rate cuts next year should bode well for growth stocks across the board, including solar companies like First Solar.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
