Down 6% This Year, What’s Happening With First Solar Stock?

First Solar (NASDAQ:FSLR) has had a mixed year thus far in 2024, with its stock declining by about 6% since early January. This mirrors the larger solar industry, which has underperformed the broader S&P 500 index amid high-interest rates and mixed earnings from major solar players. However, First Solar’s financial performance has been fairly strong. For Q4 2023, First Solar’s revenue rose by 16% year-over-year to $1.16 billion, driven by higher module volumes and rising average selling prices. Earnings beat estimates coming in at $3.25 per share compared to a loss during the year-ago period. First Solar’s margins have also improved in recent quarters, driven by higher economies of scale from rising shipments, improving average selling prices as well as lower costs, and easing supply chain issues. First Solar has been producing and selling more panels in the United States, enabling it to benefit from the Section 45X tax credit under 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. The company is likely to realize $1.0 billion to $1.05 billion of Section 45X tax credits this year as well.

First Solar’s production base has also been growing, driven by expanding capacity in Ohio. Total nameplate manufacturing capacity stood at 16.6 GW in 2023 and the company expects capacity to grow to over 25 GW by 2026, led by expansion of its Series 7 panel manufacturing in the U.S. in locations including Alabama, Louisiana, and Ohio. First Solar also has a healthy backlog of bookings that has grown to over 80 GW as of the end of 2023, up from 61.4 GW at the end of 2022. This gives the company solid revenue and gross margin visibility, with prices more or less locked in for 95% of the backlog.

Looking at a slightly longer period, FSLR stock has seen extremely strong gains of 60% from levels of $100 in early January 2021 to around $160 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 is 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. That said, there are risks as well. A meaningful part of First Solar’s financial performance has been due to the Inflation Reduction Act. The upcoming Presidential and congressional elections due later this year could prove a risk for the company.  Inflation Reduction Act-related tax credits could be modified if Republicans, who typically favor a market-based approach over subsidies for renewables – come to power. That said we remain neutral on First Solar stock, with a $162 price estimate, which is roughly in line with the current market price. See our analysis of First Solar Valuation: Expensive or Cheap for more details.

[1] Returns as of 3/11/2024
[2] Cumulative total returns since the end of 2016

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