First Solar Stock Set to Break Higher

first solar stock
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First Solar Stock Sizzling in Trump’s Oil World

I’m not sure if you have been following the solar energy segment, but, despite the perception that President Donald Trump will kill the high-growth area, solar stocks have been staging a strong rally.

One of the top gainers has been First Solar, Inc. (NASDAQ:FSLR). First Solar stock traded at a 52-week high of $81.72 on April 27.

In the time since Trump took aim at the solar sector by placing major tariffs on imported solar panels, we have seen an impressive rally.

FSLR stock has more than doubled from its range low of $33.27 on May 18, 2017, delivering an awe-inspiring return of 95% over the past year.

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The following chart shows a potential bullish cup and handle breakout for FSLR stock.

Chart courtesy of StockCharts.com

First Solar is the best of breed in the solar segment.

The players in the solar power sector have steadily cleaned up their balance sheets and now run more efficient companies—in contrast to the bygone days of SunEdison, Inc., which was crippled by massive debt.

Guggenheim Solar ETF (NYSEARCA:TAN) has been rallying, up 25.5% over the past year, which, while vastly underperforming FSLR stock, is easily beating the S&P 500 and the Nasdaq.

Chart courtesy of StockCharts.com

In a positive development, the California Energy Commission has mandated a policy that will require that most new homes built after 2020 have solar panels installed on their roofs.

The move by California and other alternative energy-friendly states should help companies like First Solar.

My Fundamental Bull Case for FSLR Stock

The first thing you will notice about First Solar is the strength of its balance sheet. The company holds cash of almost $3.0 billion (about $28.61 per share) and a manageable $478.0 million in debt.

The company’s key free cash flow metric has been positive in three of the last five years, including generating a massive $827.0 million in 2017.

 Year Free Cash Flow ($ Millions)
2013 $573.6
2014 $423.4
2015 ($527.4)
2016 ($22.7)
2017 $827.0

The strong funds from operations (FFO) generated by First Solar affords the company financial flexibility for such things as additional capital expenditure (CapEx) and acquisitions of battered-down solar assets.

Revenues are down from levels a few years back, but First Solar managed to squeeze out a small 1.3% increase in 2017.

 Year Revenue ($ Billions) Growth
2013 $3.3
2014 $3.4 3.1%
2015 $3.6 5.5%
2016 $2.9 -18.8%
2017 $2.9 1.3%

For 2018, revenues are estimated to contract 12.9% to $2.6 billion. In 2019, they are expected to rally by 19.3% to a consensus $3.1 billion.

Note that there is a high revenue estimate of $4.5 billion for 2019, representing potential growth of 76%. (Source: “First Solar, Inc. (FSLR),” Yahoo! Finance, last accessed May 10, 2018.)

On the earnings end, First Solar reported generally accepted accounting principles (GAAP) earnings in three of the past four years.

In 2017, FSLR delivered an adjusted $2.59 per diluted share, but this is expected to fall to $1.73 per diluted share this year as revenues decline.

The excitement comes in 2019 when First Solar is expected to earn a consensus $3.27 per diluted share, with a high estimate way up at $4.87 per diluted share.

Analyst Take

I continue to be bullish on FSLR stock, despite the strong share appreciation.

The stock prices could take off if the company can deliver everything close to the high estimates in 2019.

First Solar stock is trading at 15-times its high estimate. Even a reasonable multiple of 20-times implies that First Solar stock could trend much higher over the next two years.