First Solar stock has had a solid year, rising by about 28% year-to-date, while Enphase Energy has seen its stock decline by 21% over the same period. First Solar is slated to report its Q2 2024 results soon, with earnings expected to come in at $2.71 per share and revenues at about $954 million, both ahead of consensus estimates. The company’s financial performance has been strong, with revenues rising by 45% year-over-year in Q1 2024 and net profit margins increasing to over 28%. Demand for solar remains strong, with First Solar recording about 2.7 gigawatts of bookings from January through early May.
First Solar is benefiting from the Section 45X tax credit under the U.S. Inflation Reduction Act, with the company likely to realize $1.0 billion to $1.05 billion of tax credits this year. Gross margins stood at 44% in the first quarter, up from 20% in Q1 2023. FSLR stock has seen strong gains of 120% from early January 2021 to around $220 now, outperforming the S&P 500 over this period. However, returns for the stock have been inconsistent, with underperformance in 2021 and 2023 compared to the S&P 500. The Trefis High Quality Portfolio, with 30 stocks, has consistently outperformed the S&P 500.
There are multiple long-term positives for the solar sector and First Solar. Inflation has cooled off, and the Federal Reserve is considering reducing interest rates in 2024, which should benefit renewable energy stocks. First Solar is well-positioned to benefit from U.S. efforts to encourage domestic renewables production. Risks include the potential easing of regulatory tailwinds that have contributed to the company’s strong financial performance and stock price appreciation. The upcoming U.S. Presidential and Congressional elections could also pose a risk. Trefis remains neutral on First Solar stock, with a $235 price estimate, slightly above the current market price.
As a group, HQ Portfolio stocks have provided better returns with less risk compared to the S&P 500, outperforming the benchmark index each year over the same period. The solar sector, including First Solar, is expected to benefit from the current macroeconomic environment, with the potential for reducing interest rates making financing of large-scale projects more affordable. While there are risks to consider, such as the potential easing of regulatory tailwinds and the upcoming elections, the outlook for the solar sector remains positive. Trefis continues to monitor the situation and remains neutral on First Solar stock.
