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First Solar (FSLR) Rises 33% Year to Date: Should You Buy Now?
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First Solar Inc.’s (FSLR - Free Report) shares surged an impressive 32.6% in the year-to-date period, outperforming the Zacks solar industry, the broader Zacks Oil-Energy sector as well as the S&P 500. As the largest solar module manufacturer in the United States, First Solar rides on its consistent strategy of enhancing manufacturing capacities and innovating new products, backed by a solid financial position.
First Solar Outperforms Industry, Sector & S&P500
Image Source: Zacks Investment Research
With First Solar riding high, individuals may rush to add it to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
What Pushed FSLR Up?
Manufacturing Capacity Expansion: Soaring solar energy demand has been encouraging module producers like First Solar to enhance their manufacturing capabilities. The company manufactured a record 3.6 GW in the first quarter of 2024, up 44% year over year. Such improvements must have enabled FSLR to make solid shipments of its modules that surged a solid 42% year over year, thereby bolstering its operating results. FSLR’s first-quarter revenues improved 44.8% from the year-ago quarter’s level. The bottom line surged a massive 450%.
Product Innovation: Amid the rapidly evolving renewable energy market, solar module producers like First Solar are innovating new products to survive the competition and offer more energy-efficient solutions. With this aim in view, in October 2023, the company began commercial production of its bifacial Series 6 Plus modules, which come with an average power output of 467 watts. This bifacial module features an innovative transparent back contact, which can lower the operational temperature of the module, resulting in a higher energy yield.
Undoubtedly, a strong financial position enables First Solar to increase capacity and advance product developments, which work in favor of the company’s growth. First Solar’s cash and cash equivalents as of Mar 31, 2024, came in at $1.99 billion, quite higher than both its long-term debt of $0.42 billion and the current debt of $0.20 billion.
Risks to Consider
Although we live in a free trade era and manufacturers like First Solar benefit immensely from it, international trade policies, at times, pose risks for such manufacturers. For instance, in October 2023, a U.S. coalition filed petitions with the U.S. Department of Commerce (“USDOC”) on aluminum extrusions, which resulted in further investigations. First Solar imports certain items that appear to be within the scope of the investigations. If the USDOC imposes duties, First Solar’s operating results could be adversely affected.
Moreover, significant production capacity enhancement in China relative to global demand created an oversupply, which, in turn, has visibly dragged down the price of modules and, to some extent, created supply-demand imbalances. Consequently, if FSLR’s competitors lower module prices to or below their manufacturing costs or operate at minimal margins, it could negatively impact First Solar's business and financial health.
Will FSLR’s Growth Sustain?
Despite the aforementioned industry challenges, one may remain optimistic about the company’s near-term growth prospects. With its second-quarter results set to be released by the end of this month, a quick sneak peek at its earnings and sales estimates reflects the same.
Upbeat Estimates
The Zacks Consensus Estimate for FSLR’s second-quarter revenues and earnings reflects a solid improvement of 16.7% and 45.4%, respectively, from the prior-year quarter’s level.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings indicates an improvement of 36.3% from 2023, while that for revenues implies a surge of 76.1%. Its 2025 estimates also reflect similar growth trends.
Image Source: Zacks Investment Research
Future Expansion Strategies Boost Hope
To further enhance its manufacturing capability, First Solar is currently in the process of expanding its manufacturing capacity by approximately 7.6 GW. This includes the construction of its fourth and fifth manufacturing facilities in the United States, expected to commence operations in the second half of 2024 and late 2025, respectively. Such elaborate manufacturing capacity expansion plans should enable FSLR to duly meet its production target of 15.6-16 GW solar modules by 2024-end. Such a solid manufacturing enhancement strategy should attract more customers, thereby significantly boosting its future revenue stream.
Should You Make an Entry Now or Later?
In terms of valuation, FSLR’s forward 12-month price-to-earnings (P/E) is 13.05X, a premium to the peer group’s average of 5.05X. The company is also trading at a significant premium to other industry players like JinkoSolar (JKS - Free Report) (3.72X), Canadian Solar (CSIQ - Free Report) (6.62X) and Emeren (SOL - Free Report) (3.81). This suggests that investors may be paying a higher price than the company's expected earnings growth.
Premium Valuation
Image Source: Zacks Investment Research
So, to summarize, despite the surge in FSLR’s shares, this might not be the ideal time to invest in it, considering its premium valuation. However, those who already own this Zacks Rank #3 (Hold) stock may stay invested as the company's financial stability, upbeat estimates and capacity expansion plans offer solid growth prospects.
Image: Bigstock
First Solar (FSLR) Rises 33% Year to Date: Should You Buy Now?
First Solar Inc.’s (FSLR - Free Report) shares surged an impressive 32.6% in the year-to-date period, outperforming the Zacks solar industry, the broader Zacks Oil-Energy sector as well as the S&P 500. As the largest solar module manufacturer in the United States, First Solar rides on its consistent strategy of enhancing manufacturing capacities and innovating new products, backed by a solid financial position.
First Solar Outperforms Industry, Sector & S&P500
With First Solar riding high, individuals may rush to add it to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
What Pushed FSLR Up?
Manufacturing Capacity Expansion: Soaring solar energy demand has been encouraging module producers like First Solar to enhance their manufacturing capabilities. The company manufactured a record 3.6 GW in the first quarter of 2024, up 44% year over year. Such improvements must have enabled FSLR to make solid shipments of its modules that surged a solid 42% year over year, thereby bolstering its operating results. FSLR’s first-quarter revenues improved 44.8% from the year-ago quarter’s level. The bottom line surged a massive 450%.
Product Innovation: Amid the rapidly evolving renewable energy market, solar module producers like First Solar are innovating new products to survive the competition and offer more energy-efficient solutions.
With this aim in view, in October 2023, the company began commercial production of its bifacial Series 6 Plus modules, which come with an average power output of 467 watts. This bifacial module features an innovative transparent back contact, which can lower the operational temperature of the module, resulting in a higher energy yield.
Undoubtedly, a strong financial position enables First Solar to increase capacity and advance product developments, which work in favor of the company’s growth. First Solar’s cash and cash equivalents as of Mar 31, 2024, came in at $1.99 billion, quite higher than both its long-term debt of $0.42 billion and the current debt of $0.20 billion.
Risks to Consider
Although we live in a free trade era and manufacturers like First Solar benefit immensely from it, international trade policies, at times, pose risks for such manufacturers. For instance, in October 2023, a U.S. coalition filed petitions with the U.S. Department of Commerce (“USDOC”) on aluminum extrusions, which resulted in further investigations. First Solar imports certain items that appear to be within the scope of the investigations. If the USDOC imposes duties, First Solar’s operating results could be adversely affected.
Moreover, significant production capacity enhancement in China relative to global demand created an oversupply, which, in turn, has visibly dragged down the price of modules and, to some extent, created supply-demand imbalances. Consequently, if FSLR’s competitors lower module prices to or below their manufacturing costs or operate at minimal margins, it could negatively impact First Solar's business and financial health.
Will FSLR’s Growth Sustain?
Despite the aforementioned industry challenges, one may remain optimistic about the company’s near-term growth prospects. With its second-quarter results set to be released by the end of this month, a quick sneak peek at its earnings and sales estimates reflects the same.
Upbeat Estimates
The Zacks Consensus Estimate for FSLR’s second-quarter revenues and earnings reflects a solid improvement of 16.7% and 45.4%, respectively, from the prior-year quarter’s level.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings indicates an improvement of 36.3% from 2023, while that for revenues implies a surge of 76.1%. Its 2025 estimates also reflect similar growth trends.
Future Expansion Strategies Boost Hope
To further enhance its manufacturing capability, First Solar is currently in the process of expanding its manufacturing capacity by approximately 7.6 GW. This includes the construction of its fourth and fifth manufacturing facilities in the United States, expected to commence operations in the second half of 2024 and late 2025, respectively. Such elaborate manufacturing capacity expansion plans should enable FSLR to duly meet its production target of 15.6-16 GW solar modules by 2024-end. Such a solid manufacturing enhancement strategy should attract more customers, thereby significantly boosting its future revenue stream.
Should You Make an Entry Now or Later?
In terms of valuation, FSLR’s forward 12-month price-to-earnings (P/E) is 13.05X, a premium to the peer group’s average of 5.05X. The company is also trading at a significant premium to other industry players like JinkoSolar (JKS - Free Report) (3.72X), Canadian Solar (CSIQ - Free Report) (6.62X) and Emeren (SOL - Free Report) (3.81). This suggests that investors may be paying a higher price than the company's expected earnings growth.
Premium Valuation
So, to summarize, despite the surge in FSLR’s shares, this might not be the ideal time to invest in it, considering its premium valuation. However, those who already own this Zacks Rank #3 (Hold) stock may stay invested as the company's financial stability, upbeat estimates and capacity expansion plans offer solid growth prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.