Why Did First Solar Stock Surge 15%?

First Solar stock (NASDAQ:FSLR) rallied by nearly 15% during Wednesday’s trading, pushing its year-to-date gains to around 40%, in contrast to sector peer Enphase Energy (NASDAQ:ENPH) , which remains down about 15% year-to-date. The surge comes on the heels of the recent presidential debate between former President Donald Trump and Vice President Kamala Harris, where Harris appeared to have the upper hand. Her strong debate performance has boosted investor sentiment, as a potential Democratic victory is seen as favorable for the clean energy sector. Should Republicans – who typically prioritize a market-driven approach over government subsidies for renewables – take control of the White House and Congress, legislation such as the green energy-friendly Inflation Reduction Act could face changes. This makes the continuation of President Joe Biden’s clean energy policies particularly important for U.S.-based solar manufacturers like First Solar.

There have been multiple regulatory initiatives by the Biden administration, focused on the clean energy sector. For instance, First Solar is benefiting from the Section 45X tax credit under the U.S. Inflation Reduction Act, given that it has been doing an increasing mix of its manufacturing in the U.S.  The company is likely to realize $1.0 billion to $1.05 billion of Section 45X tax credits under the act this year, adding directly to its operating profits. A meaningful part of First Solar’s strong financial performance can be attributed to the Inflation Reduction Act in recent quarters. The Biden Administration also recently raised tariffs on solar cells imported from China from 25% to 50%. This should prevent dumping by the Chinese, given that there is a massive capacity glut in China, with the country’s solar panel production capacity estimated to stand at more than 2x global solar demand in 2023.

The increase in FSLR stock over the last 3-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were -12% in 2021, 72% in 2022, and 15% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it 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 around rate cuts and multiple wars, 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 falling to just about 2.5% for August and this should prompt the Federal Reserve to reduce interest rates. This will bode well for renewable energy stocks, by making financing of large-scale projects more affordable. First Solar will also remain 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. We remain neutral on First Solar stock, with a $243 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.

While First Solar stock could fare well in the coming years, it is helpful to see how First Solar’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 9/12/2024
[2] Cumulative total returns since the end of 2016

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