It has been a rough year for solar stocks, but panel manufacturer First Solar has been "overly penalized," according to Barclays analysts who upgraded FSLR stock to a buy rating Thursday.
"In an environment where there is uncertainty around the trajectory of utility-scale growth, we think FSLR's contracted backlog, domestic content advantages and current valuation offers an attractive entry point," wrote Barclays analyst Christine Cho in a client note Thursday.
Barclays upgraded FSLR stock to overweight from equal weight. But the report lowered Barclays' price target for FSLR stock to 224, from 230.
On the stock market today, FSLR stock climbed in premarket trading but gave up those gains. Shares closed down 1.4% at 149.39.
FSLR Stock: Growing Concerns About Utility-Scale Solar
First Solar is a Tempe, Ariz.-based manufacturer of solar panels. FSLR stock has climbed just 1.5% this year. But the shares are down just under 20% since the start of September, entering trading Thursday.
Longer-term, First Solar is among companies ready to benefit from subsidies built into the 2022 Inflation Reduction Act. Under the IRA, solar projects using equipment made in the United States 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.
Still, solar stocks have struggled this year. The 25 stocks tracked by IBD MarketSmith in the Energy-Solar industry group have lost a cumulative 33% thus far in 2023. The group ranks a dismal 196 among the 197 industry groups tracked by MarketSmith, based on six-month price performance. Rising interest rates, changes to net-metering rules in California and lower energy costs in some states have hit companies in the residential solar market particularly hard.
First Solar serves larger projects in the utility-scale market, which has held up better for most of this year. But investors are increasingly concerned that a slowdown for the utility-market could hold panel deliveries back. Further, there are concerns that parts of the IRA could get rolled back, the Barclays report noted.
"We believe that some of the concerns around a couple of the risks are overblown and FSLR is going to be a little more insulated for some of these risks compared to its other utility-scale peers," Cho wrote.
That's in part because First Solar has a backlog of projects totaling 77.8 gigawatts, according to its second-quarter earnings published July 27.
First Solar second-quarter earnings tripled to $1.59 per share while revenue grew 30.6% to $811 million. Analysts polled by FactSet expected earnings of $1 per share on $722.2 million in sales. In September, FSLR stock earned some upgrades following an analyst day. The company projected gross margin would grow from 42% next year to more than 60% in 2026, helped by the Federal Inflation Reduction Act.
FSLR Better Value Than Solar Peers?
Further, the Barclays reported noted that FSLR stock has fallen more sharply than utility-solar market peers, such as Nextracker and Array Technologies.
FSLR is trading at about 17-times its 2024 projected adjusted earnings per share and 8.5-times 2025 projected EPS. That implies a significant discount to ARRY and NXT, the Barclays report noted.
"At this juncture, we think the gap is too large and are upgrading the stock," Cho wrote.
More analysts like FSLR stock than not. The company has 19 buy or overweight ratings, compared to 10 hold ratings and zero sell, according to FactSet.
But that hasn't helped shares of late. According to IBD Stock Checkup, FSLR stock has a poor 46 (out of 99) Composite Rating, a composite of five other fundamental and technical ratings. Its EPS Rating is a stronger 82, helped by earnings growth this year.
