First Solar ( NASDAQ:FSLR ) , a maker of advanced thin-film photovoltaic (PV) modules, cut its inventory this year from late summer to late fall as high interest rates deterred homeowners and others from pursuing solar projects. However, Wall Street analysts see significant upside potential for stocks amid expectations that the Federal Reserve will cut interest rates next year.
I agree with these analysts and see a bright future for First Solar. In addition to lower tariffs, there is a broader global trend toward renewable energy in the coming months. In addition, the company benefits from an industry-leading PV module and can benefit from the continued contribution of the Inflationary Reduction Act (IRA).
Let's take a closer look at First Solar below.
A rise in interest rates could reinforce the broader trend
In late December, the Federal Open Market Committee announced that it intends to cut interest rates by at least three percent in 2024 and beyond. The move boosted solar companies like FSLR, reversing their downward trend since late summer. The connection between interest rates and the prosperity of solar companies is that most customers buy solar panels and related equipment under multi-year purchase agreements and make long-term payments based on rates. . The higher the tariffs, the less willing some customers will be to switch to solar panels. With interest rates expected to fall from multi-decade highs in the coming months, some potential solar customers previously turned off by the expected interest payments may switch to renewable energy.
Along with more favorable interest rates, First Solar is poised to take advantage of other trends that are pushing customers toward renewable energy. In the past 20 years to 2023, the cost of residential electricity has increased every year but two. A near-term influx of low-cost solar modules from Asian companies threatens U.S. production but could lower prices, leading to greater adoption in that country. Perhaps more importantly, environmentally conscious customers have increasingly turned to solar and other green energy in recent years, and this trend is expected to continue into the 2030s. The part shows that he can. solar energy. This represents 40% of US electricity generation by 2035, up from just 5% in 2022.
First product and special solar profile
Analysts say First Solar's unique photovoltaic modules are different from those made by competing companies. First Solar PV is a low carbon alternative to traditional modules. Analysts at TD Cowen described them as "generally better products than crystalline silicon modules". So, while the entire solar industry could benefit from growth in the above factors, First Solar could be uniquely positioned to capture a larger share of the growing solar market.
First Solar's strong earnings and balance sheet also position it favorably against peers. In its third-quarter earnings report, the company left its 2023 net cash balance unchanged at $1.5 billion to $1.8 billion, while raising its lowest operating profit forecast for the year to $770 million from $745 million. The company also recently forecast operating margins to grow to approximately 10-24% over the next three years, and gross margins to grow to 20-30% over the same period. It has a strong reserve portfolio of 81.8 gigawatts by 2030. As the Depreciation Act continues to support the industry more broadly, First Solar is expected to receive up to $710 million in total IRAs through 2023.
Potential obstacles in an election year
While all of these factors point to First Solar's growth potential, it's important to note that there will also be headwinds in the coming months. First, the United States is just entering the winter season, when there are fewer solar panels than in the warmer months. Add to that the uncertainty of when the Federal Reserve might cut interest rates, and the benefits of the above factors could be delayed by several months.
The United States is also entering an important election year. The inflation relief law, which Republican lawmakers largely opposed before it passed, was favorable to renewable energy companies like First Solar. Analysts at TD Cowen said they "continue to see investor anxiety about a Republican victory in this area." A change in policy direction could mean ending domestic production credit and reducing IRA-administered price premiums.
What is FSLR's stock price target?
FSLR is listed as a strong buy on TipRanks based on 17 buy ratings and four analysts over the past three months. First Solar has an average target price of $230.68, suggesting a potential upside of 35.7%.
Conclusion. Should FSLR be considered?
Shares of First Solar have fallen in recent months, but analysts expect them to recover with a possible drop in interest rates and a continuation of the renewable energy trend. There are reasons for caution, including the impact of the 2024 election, but the company still has a solid Strong Buy rating.
Disclosure of Information
Today, the spotlight is on First Solar, Inc. (NASDAQ: FSLR).
