First Solar, an affordable, high-quality green investment

Key Points

• First Solar outperformed peer Enphase in Q3, and shares are responding favorably.
• Analysts see the stock rising double-digits at the low-end of their range. 
• A fortress balance sheet and balanced approach to growth will drive value for shareholders. 

First Solar NASDAQ: FSLR shares are down significantly from the peak set earlier this year, but the odds are high that the peak will be retested and surpassed in 2024. The company has established itself as a blue-chip leader in the solar electrification industry, and now shares are trading at a price point attractive for new investment. 

While headwinds and worries persist, the data suggests that not only is the company ready for a rebound, but it is deeply undervalued. Earnings are expected to grow 65% in 2024 and continue to grow from there. In that light, the stock’s current P/E of 19.5X and the forward P/E of 10X suggest this stock could double in price over the next 4 quarters. 

First Solar shines, Enphase ducks behind the clouds 

Results from First Solar and Enphase NASDAQ: ENPH were essentially in alignment, but 3 significant factors stand out to make First Solar the better buy. The first is that Enphase's revenue contracted compared to last year, and First Solar’s expanded. The 2nd is that the margin was weak compared to First Solar; both outperformed the consensus, but First Solar did so by a far wider margin. 

The 3rd is the guidance. Enphase expects weak sales in Q4, and the weakness may persist, given inventory imbalances and slacking demand in key European markets. First Solar, on the other hand, reiterated the FY guidance despite posting a weak Q3 top line, and it raised the midpoint for earnings to catalyze a rebound in the share price. 

First Solar reported $801.09 million in net revenue, a gain of 27% over last year. This is down sequentially due to a slight downtick in volume, but volume is expected to remain solid. The revenue missed the consensus by 1000 basis points, the worst news in the report, but offset by a significantly wider margin. The GAAP earnings came in at $2.50, up 35% compared to last year and 2250 bps above the Marketbeat.com consensus. The downside is that Q4 results will be below the current consensus estimates, which did not phase the market. 

Analysts buy into First Solar expansion plans

First Solar is among the best-run tech companies on the market. The company has substantial cash flows to support the business and a fortress balance sheet. The company’s net cash balance fell $0.2 billion to $1.3 billion, but the salient point is the company is net cash with incredibly low leverage. Long-term debt is only 7% of equity and 5.8% of assets, putting the company in a robust financial position. The decrease in net debt is due to an increase in cash offset by an increase in debt related to international expansion and investment in growth. 

Analysts rate the stock a Moderate Buy with a price target suggesting substantial upside for investors. The consensus target of $236 is about 60% above the current price action, and it is trending higher, but the low price target is equally appealing. The low price target of $170 was set in early spring and was followed by a steady stream of price target increases. More importantly, the $170 low target is well above the current price action, implying a deep value for investors. 

The technical outlook: First Solar at a bottom

The price action in FSLR suggests the bottom is in for the market. The stock hit a new low ahead of the report and moved higher in its wake to form confirming support near $130. That level is consistent with a continuation signal in 2022 and the 150-week EMA, an indicator of buy-and-hold sentiment, so the Doji Candle has more meaning than it might otherwise. The indicators are consistent with a trough within a downtrend, if not a rebound, so there is some upward bias. If the market follows through on the signal, a vigorous rally may follow. If not, this stock could consolidate at current levels until the next earnings report or longer.