On Tuesday, January 5, First Solar, Inc.’s (NASDAQ:FSLR) stock price shot up eight percent to $72.03. Why? Goldman Sachs just upgraded its rating on the FSLR stock, saying the company’s share price could hit $100.00.
Is $100.00 a realistic price target for FSLR stock?
FSLR Stock Has “The Strongest Balance Sheet”
A team of analysts led by Brian Lee at Goldman Sachs upgraded First Solar stock from a “Neutral” rating to a “Buy” rating. Lee believes that First Solar has “the strongest balance sheet” in the industry. The brokerage firm also raised its price target on FSLR stock from $61.00 to $100.00. (Source: “First Solar Rises as Goldman Upgrades ‘Strongest Balance Sheet’,” Bloomberg, January 5, 2015.)
Indeed, balance sheet-wise, First Solar is in good condition. The company had $1.8 billion in cash and equivalents and less than $300 million in total debt by the end of the third quarter. According to Lee, this would give First Solar an advantage over its competitors, as the U.S. solar industry gets a boost from federal and state incentives.
Looking back, First Solar already had a good run. In 2015, FSLR’s stock price climbed an impressive 48%, from $44.59 to $65.99. The upgrade from Goldman might just be the start of a new rally, as there has been some great news for renewable energy companies hitting the headlines recently.
Chart courtesy of www.StockCharts.com
The solar industry is getting renewed interest from investors, as the U.S. government rolls out more incentives supporting renewable energy adoption. California Governor Jerry Brown has signed a 50% renewable portfolio standard into law, requiring utilities to procure 50% of their electricity from renewable energy sources by 2030.
Moreover, the U.S. Congress reached a deal last month to extend a 30% federal tax credit to those who install renewable energy systems in their homes and offices. A few days later, both the U.S. House of Representatives and the U.S. Senate passed the omnibus spending bill, which includes the extension on subsidies to renewable energy.
Plus, the ongoing theme in renewable energy adoption is a global one. At the United Nations COP 21 Summit in Paris last month, 196 countries signed an agreement to limit the rise in global mean temperatures to two degrees Celsius (3.6 degrees Fahrenheit) by the end of the century. Every country also agreed to come up with a carbon reduction plan and renew it every five years.
According to the Goldman Sachs analyst, First Solar would be “a key beneficiary of CA’s decision to raise its renewable mandate to 50%, while the extension of the 30% federal ITC for solar in the U.S.—where FSLR has significant leverage—does not appear to be appreciated in either estimates or the stock vs. peers.” (Source: “Goldman Upgrades First Solar to Buy as ‘The Underappreciated Bellwether Takes its Rightful Place’,” Yahoo! Finance, January 5, 2015.)
First Solar has released its guidance for full-year 2016. The company forecasts net sales to be between $3.9 billion and $4.1 billion for the year, with net sales from solar power systems to represent 90%–95% of the total. The company’s gross margin is expected to be between 16% and 18%, while operating income is expected to be between $260 million and $330 million. (Source: “First Solar Inc. Announces Full Year 2016 Guidance,” First Solar, Inc., December 9, 2015.)
The Bottom Line on FSLR Stock
At the end of the day, investors should take note that First Solar is different from some other solar companies in that its main clients are wholesale buyers like utility companies, rather than individual consumers. The nature of the company’s business, therefore, could mean more stability in FSLR stock.
With the outlook in the solar industry brighter than ever, $100.00 isn’t off the table for First Solar, Inc. shares.