First Solar (FSLR) Is Outpacing the Market and Trades at Compelling Multiples

The worldwide shift towards clean energy solutions makes companies such as First Solar (FSLR) the top investment choice in 2024. Valued at $24.1 billion by market cap, First Solar stock has more than tripled investors’ returns in the last 10 years, outpacing the broader markets in this period, although it has recently suffered a slight decline of 27%.

I’m bullish on the clean energy stock as the renewable energy behemoth continues to invest in expansion efforts, driving future cash flows and earnings higher. Further, FSLR trades at a compelling multiple and should stage a rebound if it can sustain its growth rates going forward.

An Overview of First Solar

First Solar is a solar technology company that provides PV (photovoltaic) solar energy solutions in the U.S. and other international markets. It manufactures and sells PV and cadmium telluride solar modules that convert sunlight into electricity. The company’s residual business operations include project development, operations, maintenance services, and selling PV solar power systems to third-party customers.

A Focus on Manufacturing and Technology

One important reason to be bullish on FSLR is its portfolio of products. It is among the top ten largest solar manufacturers and is the only large U.S. based clean energy company that does not manufacture in China.

First Solar has a large solar manufacturing footprint in Ohio and recently completed setting up its third manufacturing facility in the U.S. With a new facility under progress, First Solar is positioned to end 2025 with a manufacturing capacity of 20 gigawatts, with a footprint spanning the U.S., India, Vietnam, and Malaysia.

First Solar’s thin-film PV technology produces energy-efficient modules that require just 1%- 2% of the semiconductor material needed to produce a comparable amount of power compared to legacy modules.

FSLR financials

Another reason for bullishness is First Solar’s strong performance in Q2 of 2024, ending the quarter with adjusted earnings of $3.25 per share, significantly higher than estimates of $2.69 per share.

First Solar’s sales increased from $811 million to $1.01 billion in the last 12 months. During this period, its gross margins expanded from 38.3% to 49.4%, allowing the company to double its operating income from $169 million to $373 million.

First Solar’s balanced approach to growth, profitability, and liquidity differentiates it from peers, allowing it to deliver value to customers and shareholders. In the June quarter, the company secured a net 0.9 gigawatts of bookings with an average selling price of $0.316 per watt, bringing its year-to-date net bookings to 3.6 gigawatts.

First Solar ended 2023 with a contracted backlog of 78.3 gigawatts with an aggregate value of $23.3 billion. It has since contracted 2.7 gigawatts of incremental volume, reduced bookings by 0.4 gigawatts, and recognized 6.1 gigawatts of volume sold, bringing its total backlog to 74.6 gigawatts with a value of $22.3 billion.

A substantial portion of its backlog includes opportunities to increase base ASP through the application of adjusters, which are tied to First Solar’s technology roadmap and product delivery timing.

First Solar ended Q2 with a net cash balance of $1.2 billion, providing it the flexibility to weather an uncertain and volatile macro environment.

First Solar Continues to Invest in Growth

First Solar’s hunger is another important reason for me to remain bullish as the company reinvests in capital expenditures. In the last 12 months, First Solar spent $1.41 billion in capital expenditures, up from $1.38 billion in 2023 and $903 million in 2022.

Moreover, the solar giant is now benefitting from economies of scale, reporting positive free cash flow in the last two quarters. Free cash flow stood at $90.7 million in Q2, compared to an outflow of $687 million in the year-ago period. An improved free cash flow base allowed First Solar to target acquisitions, lower balance sheet debt, and pay shareholders a dividend.

Is FSLR Stock Undervalued?

Analysts tracking First Solar stock expect it to increase adjusted earnings per share by 68.5% to $13.56 in 2024 and 63.2% to $22.14 in 2025. Priced at 16.14x forward earnings, FSLR stock is really cheap, given its earnings growth forecast and the sector median multiple of 27.17x, which is again another sound factor for bullishness.

Is FSLR Stock a Buy, According to Wall Street?

See more FSLR analyst ratings

Out of the 25 analysts tracking FSLR, 21 have Buy ratings, four have Hold ratings, and none recommend a Sell, indicating a Strong Buy consensus rating. The average FSLR stock price target is $286.52, indicating an upside potential of 25.5% from current levels.

The Takeaway

First Solar stock is a high-growth stock that trades at a cheap multiple and is priced at a discount to consensus price target estimates. It is investing heavily in capital expenditures and should continue outpacing the broader markets in 2024 and beyond.

Disclosure