First Solar Anticipates Positive Earnings Amid Market Challenges

Stock Performance Surges Despite Sector Volatility

First Solar stock (NASDAQ:FSLR) has outperformed its industry rivals, showing an impressive rise of about 14% year-to-date. In contrast, Enphase Energy (NASDAQ:ENPH), another player in the solar market, has faced a decline of 38% during the same timeframe. First Solar is set to release its Q3 2024 earnings results at the end of this month. Analysts predict earnings of $3.10 per share, an increase from $2.50 the previous year. Revenue is expected to reach approximately $1.07 billion, reflecting a 20% growth year-over-year. These figures align closely with consensus estimates. What trends may influence First Solar’s earnings this quarter? For further insights, see our detailed analysis of the First Solar Earnings Preview.

Positive Financial Momentum and Production Growth

Recent quarterly results indicate First Solar’s solid financial health. In Q2 2024, revenues grew by 25% compared to the previous year, with net profit margins climbing to 34%, up from around 21% a year earlier. Regulatory support and easing supply chain issues largely drive these profits. Additionally, First Solar’s efficient thin-film solar panels and commitment to large-scale projects have contributed to increased production volumes. Notably, the company achieved record panel production of 3.7 gigawatts during Q2, a trend expected to persist. Demand for solar energy remains strong; the company reported about 3.6 gigawatts of bookings from January through July, bringing its bookings backlog up to 75.9 gigawatts, which provides a clear view of ongoing demand.

Tax Credits Enhance Profitability for First Solar

First Solar stands to benefit from the Section 45X tax credit under the U.S. Inflation Reduction Act, particularly given its increasing domestic manufacturing. In December 2023, the company announced agreements for the sale of up to $700 million in tax credits earned under the Act. This year, expectations suggest First Solar will realize between $1.0 billion and $1.05 billion in Section 45X tax credits, which will significantly contribute to its profits. For context, gross margins rose to 49% in Q2 from 38% in Q3 2023, largely due to a higher proportion of modules sold from its U.S. factories that qualify for these tax credits. Elevated margins can be expected to continue through Q3.

Volatility and Future Outlook for First Solar

The performance of FSLR stock over the past four years has been inconsistent, with annual returns showing much more volatility compared to the S&P 500. For instance, the stock experienced a -12% return in 2021, a remarkable 72% in 2022, and a 15% return in 2023. In comparison, the Trefis High Quality (HQ) Portfolio, featuring 30 stocks, has consistently outperformed the S&P 500 annually. This suggests that HQ stocks offer better returns with reduced risk, indicating a more stable investment. Given the current economic uncertainty surrounding rate cuts and geopolitical tensions, it remains to be seen if FSLR will underperform, as it did in both 2021 and 2023, or if it will enjoy a significant rise in the upcoming year.

Long-term Opportunities Despite Risks

Despite potential risks, there are several long-term positives for both First Solar and the overall solar sector. The macroeconomic environment is improving, with inflation cooling significantly. In September, for the first time in almost four years, the Federal Reserve cut interest rates, which should facilitate financing for large-scale renewable projects. First Solar is well-positioned to benefit from increased domestic renewable production, thanks in part to its vertically integrated manufacturing. However, it’s important to consider the potential risks, including the expiration of favorable conditions from the Inflation Reduction Act and uncertainties brought on by the forthcoming U.S. Presidential and Congressional elections. Our price estimate for First Solar stands at $243, representing a 21% upside compared to its current market price. For more insights, refer to our analysis of First Solar Valuation: Expensive or Cheap.

[1] Returns as of 10/25/2024
[2] Cumulative total returns since the end of 2016

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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.