Double Downgrade Hits for First Solar

A downgrade from analysts isn't great news. Somewhere, someone has lost confidence in a stock and any reasonable investor from there has to wonder if they should pull back as well. This is what makes the news particularly unpleasant for First Solar (NASDAQ:FSLR), which took a two-step downgrade at Goldman Sachs. That downgrade dropped the company from “buy” straight through to “sell,” and the motivation behind such a pronounced move may prove disconcerting. However, First Solar should not be counted out of the market—or an investment—just yet.

Goldman Gets Pessimistic

Goldman dropped the two-step hammer down on First Solar for two key reasons. The first is that Goldman thinks that both the earnings reports and margins are seen at First Solar are about as good as they're going to get, which increases the likelihood of a decline in the near-term. Additionally, Goldman thinks that “cyclical headwinds” are emerging to drive down First Solar's fate further.

This isn't a stance that's out of line; First Solar has already had a pretty impressive year-to-date. This time last year, the company was trading at $55.83 per share. Now, it's nearly double that at $95.16 as of this writing. The notion that First Solar could lose some ground in the face of such a move almost should be expected as profit-taking steps in and people look for the next hopeful two-bagger.

Additionally, it's worth pointing out that, until about three weeks or so ago, First Solar had a place on Goldman's Conviction List, a list that points out particularly strong buying opportunities. So for Goldman to pivot so fast suggests that something may truly be amiss herein.

Less Concern From the Broader Pool

While Goldman Sachs may be heading for the door, our latest research suggests that most have chosen to hold onto their seats instead. Though the ratios involved in that consensus have been in almost a continuous state of decline for the last six months, that's still where we are today. Six months ago, the consensus of “hold” was made up of two “sell” ratings, four “hold” and eight “buy.” Today, it's now six “sell” ratings, five “hold” and six “buy.” It's clear that support is trending towards “sell” at the expense of “buy”, but it's also cleat that completely new ratings are also coming into play.

=Interestingly, in that whole time frame, the price target has only trended upward. Six months ago, the company was at $56 even for an average price target. Today, that average has ballooned to $84.19. Given that the company is currently trading at $94.61—and closed yesterday at $101.24—the price targets are either expecting trouble ahead or haven't been updated lately.

Short-Term Troubles, Long-Term Triumph?

There's no denying that First Solar has had a very solid year. Any company that can nearly double its share price in the space of a year has a lot going for it; who would doubt it? However, the flame that burns twice as bright tends to burn only half as long, so some short-term risk for the company is not out of line. Any plans to buy in should probably be delayed until the profit-taking can really kick in, and there's almost certainly going to be profit-taking involved in the near-term. However, the real winner for First Solar is a longer-term proposition.

Assuming Joe Biden is actually installed as president, that's likely to come with a whole lot of new investment in clean energy options. Some reports suggest as much as $2 trillion could make a move into the clean energy sector, and that from the federal government, so it could be a huge step forward for operations like First Solar. Better yet, recent reports about First Solar's cadmium telluride solar panels have revealed that panels installed 25 years ago are actually still producing power, based on testing at the National Renewable Energy Laboratory (NREL) in Golden, Colorado. Should these panels go into wide-scale production and release, the results should be some very happy customers.

So yes, those planning to buy in on First Solar right now are likely to be buying at or near the top. However, clean energy firms aren't likely to suffer in the long term, regardless of how the election ultimately comes out. Whether it's a new prioritization of green energy, or just regular folks looking to insulate themselves from reliance on a larger power grid, solar is going to be a growth market. First Solar may slip along the way—with the gains it's made lately, count on it—but it's still going to be worthwhile in the long term.