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How to Play First Solar (FSLR) Following Q2 Earnings Beat?
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First Solar Inc. (FSLR - Free Report) has come up with an impressive second-quarter 2024 result, wherein both the top and bottom-line figures comfortably surpassed their respective Zacks Consensus Estimate. The figures also improved on a year-over-year basis, backed by solid shipment of FSLR’s solar modules as well as a hike in the average selling price of these modules.
As the world’s largest thin-film photovoltaic (PV) solar module manufacturer, First Solar enjoys a dominant position in the global solar map, with its global footprint spanning across nations like India, Malaysia and Vietnam, in addition to the United States (where it holds the position of the largest PV solar module manufacturer).
This might lure investors to add this stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at how FSLR has performed so far in terms of share price return, the stock’s prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
FSLR Outperforms Industry, Sector & S&P 500
First Solar’s shares have surged an impressive 33.7% in the year-to-date period, outperforming the Zacks solar industry’s decline of 21.4% as well as the broader Zacks Oil-Energy sector’s return of 3.1%. It also outpaced the S&P 500’s rise of 12.3% in the said time frame.
FSLR’s YTD Performance
Image Source: Zacks Investment Research
Is There Room for Further Growth?
Thanks to the soaring solar demand worldwide, a notable surge has been witnessed in solar installation in recent quarters. We may expect to observe this trend in the coming quarters as well as industries across the board are rapidly undergoing clean energy transition. This sets the stage for steady demand growth for FSLR’s solar modules in the coming years.
In addition to growing solar demand, impressive tax credits offered by the U.S. government to solar module manufacturers, pursuant to Section 45X of the Internal Revenue Code (“IRC”) under the Inflation Reduction Act of 2022, has prompted First Solar to significantly expand its manufacturing capacity.
As of Jun 30, 2024, the total installed nameplate production capacity across all of FSLR’s facilities was approximately 17.6 gigawatts (GW). Looking ahead, the company aims to achieve an annual manufacturing capacity of more than 25 GW by the end of 2026. Such a solid manufacturing enhancement strategy should attract more customers, thereby boosting First Solar’s revenue stream.
The company has also been emphasizing on innovating more technologically advanced products to survive competition and capture more market share. With this aim in view, First Solar completed a dedicated research and development (R&D) innovation center in Ohio during the second quarter. This facility features a high-tech pilot manufacturing line, which is expected to enable the production of full-sized prototypes of thin film and tandem PV modules. Ingenious products from this innovation center should contribute favorably to First Solar’s future operating results.
Upbeat Estimates
A quick sneak peek at FSLR’s earnings and sales estimates makes us more confident about the company’s ability to continue to generate impressive top and bottom-line results in the near future.
The Zacks Consensus Estimate for third-quarter sales and earnings reflects a solid improvement of 44.1% and 33.2%, 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 75.3% from 2023, while that for revenues implies a surge of 35.7%. Its 2025 estimates also reflect similar growth trends.
Image Source: Zacks Investment Research
Potential Risks
Despite the improving solar energy systems’ deployment trend supporting First Solar’s growth trajectory, there are some industry challenges that U.S.-based solar stocks like FSLR are facing at present. One should consider this while investing in the stock.
Notably, significant production capacity enhancement in China relative to global demand created an oversupply, which, in turn, has visibly created supply-demand imbalances in the solar industry in the recent past. First Solar fears that any further upheaval in the solar market caused by China’s overcapacity might lead to volatility in the prices of solar products. This, in turn, might adversely impact the average selling price for FSLR’s modules and, thereby, its operating performance.
Also, unfavorable international trade policies remain a cause of concern for a global trading company like First Solar. 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, the company’s operating results could be adversely impacted.
Valuation Sends Mixed Impulse
In terms of valuation, FSLR’s forward 12-month price-to-earnings (P/E) is 12.63X, a discount to the industry’s average of 19.48X. This suggests that investors may be paying a lower price than the company's expected earnings growth compared to that for its industry.
The company is, however, trading at a significant premium to other industry players like JinkoSolar (JKS - Free Report) (3.28X), Canadian Solar (CSIQ - Free Report) (5.83X) and Emeren (SOL - Free Report) (3.34).
FSLR’s P/E F12M Vs Industry’s
Image Source: Zacks Investment Research
What Should an Investor Do?
To wrap up, it is advisable for investors to refrain from buying FSLR’s shares right now, considering its premium valuation when compared to other solar stocks. However, those who already have this stock in their portfolio may stay invested as its upbeat estimates, manufacturing capacity expansion plans and emphasis on innovation offer solid growth prospects. The company currently has a Zacks Rank #3 (Hold), which further supports our thesis.
Image: Bigstock
How to Play First Solar (FSLR) Following Q2 Earnings Beat?
First Solar Inc. (FSLR - Free Report) has come up with an impressive second-quarter 2024 result, wherein both the top and bottom-line figures comfortably surpassed their respective Zacks Consensus Estimate. The figures also improved on a year-over-year basis, backed by solid shipment of FSLR’s solar modules as well as a hike in the average selling price of these modules.
As the world’s largest thin-film photovoltaic (PV) solar module manufacturer, First Solar enjoys a dominant position in the global solar map, with its global footprint spanning across nations like India, Malaysia and Vietnam, in addition to the United States (where it holds the position of the largest PV solar module manufacturer).
This might lure investors to add this stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at how FSLR has performed so far in terms of share price return, the stock’s prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
FSLR Outperforms Industry, Sector & S&P 500
First Solar’s shares have surged an impressive 33.7% in the year-to-date period, outperforming the Zacks solar industry’s decline of 21.4% as well as the broader Zacks Oil-Energy sector’s return of 3.1%. It also outpaced the S&P 500’s rise of 12.3% in the said time frame.
FSLR’s YTD Performance
Is There Room for Further Growth?
Thanks to the soaring solar demand worldwide, a notable surge has been witnessed in solar installation in recent quarters. We may expect to observe this trend in the coming quarters as well as industries across the board are rapidly undergoing clean energy transition. This sets the stage for steady demand growth for FSLR’s solar modules in the coming years.
In addition to growing solar demand, impressive tax credits offered by the U.S. government to solar module manufacturers, pursuant to Section 45X of the Internal Revenue Code (“IRC”) under the Inflation Reduction Act of 2022, has prompted First Solar to significantly expand its manufacturing capacity.
As of Jun 30, 2024, the total installed nameplate production capacity across all of FSLR’s facilities was approximately 17.6 gigawatts (GW). Looking ahead, the company aims to achieve an annual manufacturing capacity of more than 25 GW by the end of 2026. Such a solid manufacturing enhancement strategy should attract more customers, thereby boosting First Solar’s revenue stream.
The company has also been emphasizing on innovating more technologically advanced products to survive competition and capture more market share. With this aim in view, First Solar completed a dedicated research and development (R&D) innovation center in Ohio during the second quarter. This facility features a high-tech pilot manufacturing line, which is expected to enable the production of full-sized prototypes of thin film and tandem PV modules. Ingenious products from this innovation center should contribute favorably to First Solar’s future operating results.
Upbeat Estimates
A quick sneak peek at FSLR’s earnings and sales estimates makes us more confident about the company’s ability to continue to generate impressive top and bottom-line results in the near future.
The Zacks Consensus Estimate for third-quarter sales and earnings reflects a solid improvement of 44.1% and 33.2%, 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 75.3% from 2023, while that for revenues implies a surge of 35.7%. Its 2025 estimates also reflect similar growth trends.
Potential Risks
Despite the improving solar energy systems’ deployment trend supporting First Solar’s growth trajectory, there are some industry challenges that U.S.-based solar stocks like FSLR are facing at present. One should consider this while investing in the stock.
Notably, significant production capacity enhancement in China relative to global demand created an oversupply, which, in turn, has visibly created supply-demand imbalances in the solar industry in the recent past. First Solar fears that any further upheaval in the solar market caused by China’s overcapacity might lead to volatility in the prices of solar products. This, in turn, might adversely impact the average selling price for FSLR’s modules and, thereby, its operating performance.
Also, unfavorable international trade policies remain a cause of concern for a global trading company like First Solar. 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, the company’s operating results could be adversely impacted.
Valuation Sends Mixed Impulse
In terms of valuation, FSLR’s forward 12-month price-to-earnings (P/E) is 12.63X, a discount to the industry’s average of 19.48X. This suggests that investors may be paying a lower price than the company's expected earnings growth compared to that for its industry.
The company is, however, trading at a significant premium to other industry players like JinkoSolar (JKS - Free Report) (3.28X), Canadian Solar (CSIQ - Free Report) (5.83X) and Emeren (SOL - Free Report) (3.34).
FSLR’s P/E F12M Vs Industry’s
Image Source: Zacks Investment Research
What Should an Investor Do?
To wrap up, it is advisable for investors to refrain from buying FSLR’s shares right now, considering its premium valuation when compared to other solar stocks. However, those who already have this stock in their portfolio may stay invested as its upbeat estimates, manufacturing capacity expansion plans and emphasis on innovation offer solid growth prospects. The company currently has a Zacks Rank #3 (Hold), which further supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.