The recent slump for shares of panel manufacturing company First Solar has created an opportunity for upside, according to an upgrade report from Morgan Stanley. FSLR stock jumped early Friday before giving up some of its gains.
Morgan Stanley on Friday upped its view on First Solar to overweight, or buy, from an equal weight rating. The analysts also increased their price target for FSLR stock to 237, from 214, implying 64% upside from Thursday's closing price.
"After the 20% sell-off over the past 3 months, we see an attractive risk-reward skew for the stock," wrote a team of analysts led by Andrew Percoco in the client note.
On the stock market today, FSLR stock opened 5% higher before giving back some of those gains. FSLR stock closed trading up just under 1% at 145.38.
FSLR Stock: Down 4% This Year
First Solar is a Tempe, Ariz.-based manufacturer of solar panels. FSLR stock has lost 4% this year, entering trading Friday. But FSLR shares are down more than 20% since the start of September.
Investors have soured on solar stocks in general this year, as rising interest rates have made projects harder to finance. The 24 stocks tracked by IBD MarketSmith in the Energy-Solar industry group have lost a cumulative 39% thus far in 2023. The group ranks last among the 197 industry groups tracked by MarketSmith, based on six-month price performance.
FSLR stock has fallen with the rest of the industry. But, longer term, First Solar is among companies analysts expect to benefit from subsidies built into the 2022 Inflation Reduction Act. Under the IRA, solar projects using equipment made in the U.S. can qualify for a bonus tax credit.
First Solar has been steadily expanding its domestic manufacturing capacity, announcing plans for a fifth U.S. factory in July.
And Morgan Stanley's report noted that First Solar has sold out all its manufacturing capacity through 2026.
"As a result, we believe its margin improvement and earnings profile is fairly de-risked over a multi-year period," Percoco wrote.
For its third quarter ended Sept. 30, First Solar earned an adjusted $2.50 per share, the company said Oct. 31, ahead of consensus of $2.05 per share. Revenue of $801 million for the quarter missed expectation of $904 million. But that appeared to be offset by the company raising its full-year operating income from $807 million to $820 million. FSLR stock gained 6% by the end that week.
First Solar Stock Action
One potential risk to FSLR stock, the Morgan Stanley note said, is potential anti-Inflation Reduction Act rhetoric from the U.S. election next year. The analysts see the manufacturing tax credits in the legislation as likely secure, but noted that headlines indicating the IRA is threatened could hurt FSLR's valuation.
Overall, Wall Street is increasingly positive in its view on First Solar. That includes Barclays upgrading the stock in October and Deutsche Bank doing the same in September. Overall, FSLR stock has 24 buy ratings and seven neutral ratings, according to FactSet. At the start of the year, First Solar had 16 buy rating and 12 neutral.
With the early gains Friday, FSLR stock edged above its 50-day moving average, according to MarketSmith. But shares have since retreated back below that line.
According to IBD Stock Checkup, FSLR stock has a poor 44 (out of 99) Composite Rating, a composite of five other fundamental and technical ratings. Meanwhile, the firm's EPS Rating is a stronger 82, helped by earnings growth this year.
