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First Solar Inc.: A Resilient Investment Opportunity

James L. Flint

• December 08, 2023

Despite the challenges faced by alternative-energy stocks, First Solar Inc. has proven its resilience in the market. After experiencing a 20% selloff in the past three months, the stock now presents an attractive risk-reward opportunity.

In a recent note, analysts at Morgan Stanley upgraded First Solar's stock (FSLR) to a buy rating and raised their price target to $237 per share. This represents a potential upside of over 60% compared to current prices.

The analysts, led by Andrew Percoco, emphasized that First Solar offers one of the strongest risk-adjusted earnings profiles. They highlighted the company's position as a vertically integrated U.S.-based solar-panel manufacturer, which provides a significant competitive advantage in the near term. First Solar has also benefited from recent policy changes in the U.S., such as the Inflation Reduction Act, further strengthening its position in the market.

While there may be long-term risks related to average selling prices affecting profit margins, the analysts believe the rating upgrade is justified. Despite potential margin erosion, First Solar still boasts one of the best risk-adjusted 2- to 3-year forward earnings profiles. Moreover, the stock is currently valued well below pre-IRA levels, indicating strong upside potential even after factoring in long-term considerations.

While many clean-energy stocks have faced considerable challenges this year due to rising interest rates and concerns about a demand slowdown, First Solar stands out as a promising investment opportunity. The company's focus on sustainability and its ability to navigate policy changes set it apart from its competitors.

It is worth noting that First Solar's performance has defied the overall trend for alternative-energy stocks. While the stock has experienced a decline of nearly 4% this year, the S&P 500 index has seen an increase of approximately 19%. Additionally, the Invesco Solar exchange-traded fund (TAN) has suffered a significant loss of about 40% during the same period.

In summary, First Solar Inc. remains an appealing investment option in the alternative-energy sector. With its strong risk-adjusted earnings profile, near-term competitive advantage, and potential for future growth, the stock presents a compelling opportunity for investors.