Down 17% In The Last Six Months, Will First Solar Stock Recover Post Q4 Results?

First Solar (NASDAQ:FSLR) is expected to publish its Q4 2023 results toward the end of this month, reporting on a quarter that is likely to see the company’s sales in the U.S. pick up further.  We expect revenues to come in at about $1.33 billion for the quarter, marking an increase of around 32% versus last year, and slightly ahead of consensus estimates. We expect earnings to come in at $3.15 per share, in line with consensus estimates.

First Solar’s profitability has improved in recent quarters, driven by higher panel shipments, improving average selling prices as well as lower costs, and easing supply chain issues. Moreover, the company has been producing and selling more panels in the United States, enabling the company to benefit from the U.S. Inflation Reduction Act. For perspective, toward the end of December, the company announced that it had signed agreements for the sale of up to $700 million in 2023 tax credits it earned under the act. Moreover, First Solar’s production base has also been growing, with total production approaching 3.2 gigawatts in Q4 2023, driven by expanding capacity in Ohio. First Solar also has a healthy backlog of bookings that has grown to  81.8 GW as of Q3, which it projects could extend into 2030 as of the third quarter of 2023.

Amidst the current backdrop, FSLR stock has seen extremely strong gains of 50% from levels of $100 in early January 2021 to around $150 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in FSLR stock has been far from consistent. Returns for the stock were -12% in 2021, 72% in 2022, and 15% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that FSLR underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including MSFT, AAPL, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could FSLR face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Overall, we think that there are multiple long-term positives for the solar sector at large and First Solar in particular. Things are getting better on the macro front. Inflation has cooled off considerably. The Federal Reserve also indicated in its most recent meeting that it was considering possibly reducing interest rates up to three times during 2024. This should bode well for renewable energy stocks, by making financing of large-scale projects more affordable. First Solar is emerging as one of the big beneficiaries of the U.S. efforts to encourage domestic renewables production given its vertically integrated manufacturing. First Solar projects that its gross margins could rise from levels of about 20% as of 2023 to 30% over the next three years, excluding the benefits of the Inflation Reduction Act, driven by lower cost per watt of its panels and strong average selling prices. We remain positive on First Solar stock, with a $211 price estimate, about 40% ahead of the market price. See our analysis of First Solar Valuation: Expensive or Cheap for more details.

[1] Returns as of 2/22/2024
[2] Cumulative total returns since the end of 2016

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