First Solar (FSLR) delivered blowout Q3 earnings last week, in the process crushing analyst estimates and sending the share price higher whilst Wall Street was in full-on meltdown mode.
Furthermore, the massive all-around beats resulted in a resumption of the company’s previously withdrawn full year guidance.
So, with the sun shining brightly on this on-trend stock, things are looking up, right? Well, yes and no, according to J.P. Morgan analyst Paul Coster.
Since 2016, the solar panel maker has spent more than $1 billion on upgrading production to the Series 6 modules. With the successful transition now practically complete, Coster agrees the company “delivered on the earnings surge previously anticipated.”
However, the company’s valuation remains a concern, according to Coster.
“The stock, up 67% YTD (S&P500 up 1.3%) is now trading close to our price target, and at historically-elevated multiples,” Coster explained. “We think this is justified by solid fundamentals in the solar space, and by improving execution. However, at the current multiple, and entering a later stage of the Series 6 product transition, focus shifts from sequential improvement in margins and profitability as production capacity fills in (what we previously called “the journey”), to whether FSLR has established a sustainable energy-density and cost/watt advantage in the global solar industry (the destination) and we think this now hangs in the balance.”
As a result, Coster downgraded First Solar’s rating from Overweight to Neutral. The $94 price target remains and implies possible upside of 8% from current levels. (To watch Coster’s track record, click here)
For Coster to become once again “more constructive on FSLR’s prospects,” the analyst would like to see the Series 6 emerge with “higher energy-density/lower cost/watt than competing silicon-based SPV products.” This will provide First Solar with a “sustainable competitive advantage that translates to share-gain or margin expansion.”
Additionally, faster than expected global or US demand for solar panels, or tax incentives which provide the company with “competitive advantage in key end-markets,” could also be catalysts for an upgrade.
So, that’s J.P. Morgan’s take, let’s have a look at what the rest of the Street has in mind for FSLR. Based on 7 Buys, 5 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. Given the $93.33 average price target, the analysts expect shares to rise by 7% over the following months. (See first Solar stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
