Why First Solar Stock Gained 30% This Year

First Solar stock (NASDAQ:FSLR) has had a solid year, rising by about 30% year-to-date. In comparison, Enphase Energy stock (NASDAQ:ENPH), another solar component player, has seen its stock decline by 8% over the same period. First Solar stock has been benefiting from several factors.

First Solar’s financial performance has been solid in recent quarters. The company posted a better-than-expected set of Q2 FY’24 results last month with revenue rising by 25% year-over-year to about $1 billion thanks to higher module volumes. Earnings also beat estimates at $3.25 per share, up about 2x compared to last year. While profits are partly driven by regulatory tailwinds and easing supply chain constraints, First Solar’s more efficient thin-film solar panels and its focus on large-scale solar projects will also likely help the company as volumes continue to ramp up. Demand for solar has remained strong with the company recording about 3.6 gigawatts of bookings from January through July, taking its total bookings backlog to about 76 GW giving the company considerable demand visibility through 2030.

First Solar is emerging as one of the biggest beneficiaries of the U.S. efforts to encourage domestic renewables production given its vertically integrated manufacturing. The company has doubled down on its U.S. manufacturing investments wrapping up the expansion of its Ohio manufacturing facilities, while its Alabama and Louisiana expansion plans remain on track.  The higher share of U.S. manufacturing is enabling First Solar to benefit from the Section 45X tax credit under the U.S. Inflation Reduction Act. In December 2023, the company announced agreements to sell up to $700 million in tax credits it earned under the act for 2023. First Solar is also expected to generate between $1.0 billion to $1.05 billion in Section 45X tax credits this year, with about $240 million in credits in Q3 and $335 million in Q4. This is expected to directly boost its operating profits. Separately, the Biden Administration raised tariffs on solar cells imported from China from 25% to 50%, which helps curb Chinese dumping – especially given the significant oversupply in China’s solar panel production capacity.

That being said, there are risks on the regulatory front as well. The upcoming U.S. Presidential and Congressional elections due later in 2024 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 – take control of the White House and Congress.

Now looking over a slightly longer period, FSLR stock has seen extremely strong gains of 125% from levels of $100 in early January 2021 to around $224 now, vs. an increase of about 50% 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 SATS, COMM, and AAPL, and even for the mega-cap stars GOOG, TSLA, and MSFT.

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 a fair bit. The Federal Reserve also appears open to reducing interest rates this year. This should bode well for renewable energy stocks, by making financing of large-scale projects more affordable. We have a $243 price estimate for First Solar stock, which is roughly 10% ahead of the current market price. See our analysis of First Solar Valuation: Expensive or Cheap for more details.

[1] Returns as of 8/30/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates