First Solar Inc.’s FSLR third-quarter 2024 earnings and sales missed their respective Zacks Consensus Estimate. However, on a year-over-year basis, both top and bottom-line figures improved by double-digit, primarily backed by an increase in the volume of modules sold.
The company has lowered its sales guidance for 2024, taking into account the termination of the Plug Power contract as well as unfavorable average selling prices of its modules in some markets, particularly India. First Solar has also narrowed its earnings guidance for the year.
This might discourage investors interested in solar stocks from investing in FSLR. However, before making any hasty decision, it would be prudent to take a look at how FSLR has performed so far in terms of share price return, the stock’s prospects as well as risks (if any) to investing in the same. This should help investors make a more insightful decision.
FSLR Stock Outperforms Industry & Sector
First Solar’s shares have surged an impressive 14.7% in the year-to-date period, outperforming the Zacks solar industry’s decline of 32.2% as well as the broader Zacks Oil-Energy sector’s return of 2.1%.
FSLR’s YTD Performance
Image Source: Zacks Investment Research
First Solar has also outpaced the year-to-date performance of a handful of other heavy-weight industry players like SolarEdge Technologies SEDG, Canadian Solar CSIQ and Enphase Energy ENPH, which have witnessed a loss of 81.9 %, 46.1% and 37.6%, respectively.
What Led to FSLR Stock’s Price Surge?
Steadily increasing solar energy demand has been boosting solar installation trends worldwide, thereby pushing up the shipment of solar products like modules manufactured by First Solar. Solid product shipments have been fetching solid revenue growth for the company. Evidently, an estimated 292 gigawatts (GW) of global solar capacity has been installed up to July 2024, as per a report published by a London-based energy research firm Ember.
Consequently, First Solar sold 3 GW of solar modules in the third quarter, which resulted in a solid 10.8% year-over-year improvement in its net sales. Such solid module shipments also boosted the company’s gross profit, which improved 18.4% year over year. The bottom line surged 16.4%. This growth trend tallies with the operating results reported by the company in the prior two quarters of 2024. This, in turn, must have been bolstering investors’ confidence in this stock, which got reflected in the form of solid price surge so far this year.
Will FSLR Stock Continue to Grow?
To meet the growing solar demand, First Solar has been investing heavily in expanding its manufacturing capacity. Notably, First Solar is currently in the process of expanding its manufacturing capacity by approximately 5.8 GW. Through its vigorous expansion, the company expects to have an annual manufacturing capacity of more than 25 GW by the end of 2026.
To this end, it is imperative to mention that in 2024, First Solar expects to invest $1.6 billion in building new manufacturing facilities, expanding existing ones, and upgrading machinery and equipment.
Being the largest solar PV manufacturer in the Western Hemisphere, First Solar enjoys a significant dominance in the U.S. solar market and thereby continues to expand and invest in its domestic manufacturing in the United States. First Solar has recently commenced operations at its fourth manufacturing facility in the United States to further strengthen its footprint in this nation. FSLR is also in the process of expanding its manufacturing capacity, including the construction of its fifth manufacturing facility in the United States, which is expected to commence operations in the second half of 2025.
Such expanding strategies should enable FSLR to duly meet its production target of 15.6-15.9 GW and sell 14.2-14.6 GW of solar modules (by 2024-end), thereby boosting its revenue and earnings growth prospects.
A quick sneak peek at FSLR’s near-term earnings and sales estimates mirrors similar improvement trends.
Upbeat Estimates for FSLR Stock
The Zacks Consensus Estimate for fourth-quarter revenues and earnings reflects a solid improvement of 33.6% and 47.7%, respectively, from the prior-year level.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings indicates an improvement of 72.4% from the 2023 level, while that for revenues implies a surge of 33.2%. Its 2025 estimates also reflect similar growth trends.
Image Source: Zacks Investment Research
Risks to Consider
Despite the promising growth prospects offered by FSLR, it poses certain risks that one should consider before investing. Notably, significant production capacity enhancement in China relative to global demand created an oversupply, which, in turn, has visibly dragged down the price of modules and, to some extent, created supply-demand imbalances. Consequently, if FSLR’s competitors lower module prices to or below their manufacturing costs or operate at minimal margins, it could negatively impact First Solar's business.
Moreover, First Solar has recently identified manufacturing issues affecting certain of its Series 7 modules manufactured in 2023 and 2024. This may cause the modules to experience premature power loss once installed in the field. Based on currently available information and certain assumptions and estimates, First Solar believes a reasonable estimate of the aggregate losses related to these manufacturing issues will range between $50 million and $100 million. This might adversely impact its operational results in the near future.
Premium Valuation
In terms of valuation, FSLR’s forward 12-month price-to-sales (P/S) is 3.88X, a premium to its peer group’s average of 1.28X. This suggests that investors may be paying a higher price than the company's expected sales growth compared to that of its peers. The stock’s P/S also looks stretched when compared to its five-year median value.
Image Source: Zacks Investment Research
What Should You Do?
To wrap up, investors should refrain from buying FSLR’s shares right now, considering its premium valuation compared to its peer stocks. The stock currently has a VGM Score of C, which is also not a very favorable indicator of strong performance.
However, those who already have this stock in their portfolio may stay invested as its upbeat estimates, manufacturing capacity expansion plans and growing solar demand offer solid growth prospects. The company currently has a Zacks Rank #3 (Hold), which further supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
