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What Biden and a Blue Wave Mean for First Solar

Stock MarketsJan 09, 2021 08:40AM ET
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© Reuters.

By Liz Moyer and Peter Nurse

Investing.com -- With a solidly blue Congress, President-elect Joe Biden’s $2 trillion clean energy plan has a greater chance of succeeding, and that’s welcome news to solar companies.

The prospect has lifted the energy sector overall this year after a decade of being the dog of the S&P 500.

First Solar Inc (NASDAQ:FSLR) could be a beneficiary of this trend, but will weakening profitability make it lag peers in the solar panel market?

Investing.com’s Liz Moyer argues the growth case for First Solar, while Peter Nurse explains the downside. 

The Bull Case

Tempe, Arizona-based First Solar makes solar panels and modules, putting it in position to benefit from Biden’s ambitious clean energy plans. 

As a candidate, Biden pledged to install 500 million solar panels in the U.S. over the next five years, and he could present other plans that could light up the solar market. 

The goal, of course, is to phase out the use of fossil fuels, especially coal. The International Energy Agency said renewable energy is on track to overtake coal as the largest power source by the year 2025, adding that solar energy is leading the pack, ahead of wind and other renewable sources.

First Solar is a key maker of something called thin-film panels, which cost one-third less to make and can operate well in varied climates, including humidity and snow. They are easier to install than traditional panels and function in low-light settings.

The stock hit a 52-week high on Friday and is up 81% over the last year. 

It stands apart from others with its balance sheet. First Solar had about $1.4 billion of cash at the end of the third quarter, allowing it to generate interest income or invest in new technologies. Some competitors, on the other hand, owe debt.

First Solar maintained profitability through the pandemic shutdowns last year, too. It is on track to report 2020 year-end earnings per share of $3.62, according to analyst forecasts. That compares to EPS of $1.48 in 2019. Sales also dipped only slightly last year and are seen as returning to 2019 levels -- just over $3 billion -- by the end of this year.

Early estimates for 2021 do have full-year EPS slowing to $3.44, but it’s early.

Another benefit to First Solar is the renewal of a tax credit for investing in clean energy, which could encourage more sales. A green-oriented Congress could also pass more legislation that could boost attention and sales in the solar space. 

Solar energy used to cost between $140 and $150 per megawatt-hour (MWh) eve with investment tax credits. But in 2020, the cost was down to $25 to $35 per MWh, according to Motley Fool. That makes solar less costly than fossil fuels, and the cost should continue to fall. That pubs solar on the path to become the lowest cost of bulk energy even considering the cost of the battery.

First Solar's backlog of business means it will continue to see growth, Motley Fool said. The company currently has a backlog of contracts totaling 12.2 gigawatts of system sales and 8.3 GW of additional mid-to-late stage opportunities in the pipeline, the analysts said. "For perspective, the company's current manufacturing capacity is 5.5 GW meaning it has years of future sales lined up."

The Bear Case

It's a truism that solar power stocks will get more love from Washington in the next couple of years than in the last four. Even so, not all solar stocks are equal; First Solar is worth a sell.

The company has streamlined its activities to focus on its core business of making thin-film solar modules. It is no longer that big a player in the solar industry, after getting rid of its asset ownership business, its North American operations and management business and its unit involved in executing power plants.

This means First Solar is a more specialized business, which could lead to more efficiency and better margins long-term, but it doesn’t have the immediate growth opportunities some of its competitors have.

It’s already showing worrying signs of weakening profitability. First Solar is expected to report year-end 2020 profit of $3.62 a share, according to FactSet data, but profit for year-end 2021 is estimated to be only $3.44.

It’s this expected drop in earnings which prompted influential investment bank Goldman Sachs (NYSE:GS) to downgrade its stance of First Solar stock to ‘sell’ from ‘buy’ earlier this week.

The bank sees First Solar's gross margins and earnings per share peaking by the middle of 2021, with EPS declining at a 17% compounded annual growth rate through 2022. 

Over the same time period, First Solar's peers will benefit from earnings growing by 20%-30%, the bank added.

This negative view is despite the benign regulatory environment. However, time pressure could see the incoming Biden administration choose to focus on other more pressing priorities.

Even with the victories in both Georgia Senate seats, the incoming administration will still need to seek out Republican moderates to pass swift legislation, meaning some of their  more ambitious proposals could yet be diluted.

“We suspect Joe Biden will initially seek to push ahead with infrastructure plans, which are more likely to get cross party support,” said ING analyst James Knightley, in a research note, earlier this week. “However, his $2trn green energy plan to decarbonize U.S. electricity production by 2035, is going to get more pushback from Republicans.”

The stock is already trading at over 50 times trailing 12-month earnings according to Investing.com data. That's expensive enough. If, as Goldman says, earnings are going to fall from here, that's not going to make it look any cheaper.

 

What Biden and a Blue Wave Mean for First Solar
 

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Comments (13)
Pwr Strk
Pwr Strk Jan 10, 2021 1:41AM ET
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i can tell you, just like this article, that it can go up or it can go down
Phil Ht
Phil Ht Jan 10, 2021 12:43AM ET
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Bidenomics is not going to go well.
Tim Shubert
Tim Shubert Jan 09, 2021 5:33PM ET
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"The Big Short 2" coming soon to a theater near you.
Itachi Uchiha
Itachi Uchiha Jan 09, 2021 5:33PM ET
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It depends on what kind of stimulus that can help recovery economy. but I am not sure how does it work in long term
Edward Sherman
Edward Sherman Jan 09, 2021 5:29PM ET
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how will a $2T plan get funded? obama gave 500M to a solar company that went bankrupt, so they say....
Phyllis Reisman
Phyllis Reisman Jan 09, 2021 5:29PM ET
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it did go bankrupt . Obama's a nice guy but nor smart..Trump maybe is not as likeable but HE'S SMART.
Julie Cruise
Julie Cruise Jan 09, 2021 4:54PM ET
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fabricating consensus
Evan Zinn
Evan Zinn Jan 09, 2021 3:17PM ET
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For the first time ever we were self suffering. Bye bye fracking and $2 gas. This isn't America anymore
Zhehui Liu
Zhehui Liu Jan 09, 2021 1:30PM ET
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Democrats will try again the failed idea. Fossil fuel remains 80% US energy. The nuclear power 9%, Renweables total 11%. Solar 1%. This situation is hardly changed in near future. Democratic supporters have been cheated.
Jeff Bailey
JeffB Jan 09, 2021 1:30PM ET
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Biden supporters haven't been cheated at all. They just chose to ignore his past. You don't sit down at the poker table with a cheat dealer like Biden/Harris, lose all your money, then claim you have been cheated. No. You slap yourself in the face, realize your mistake and drain the swamp yet again in 2024 like you did in 2016.
Dan Diaz
Dan Diaz Jan 09, 2021 1:20PM ET
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This occured during the Obama admin and failed. Remember Solyndra? Loss of taxpayer monies (500mil) is all that occured. Only CEO’s and their constituents made bank. Those that want green, go green and live green. Paper or plastic? Vegan or meat eater? Etc. etc. I’ll keep and drive my Titan 4x4.
Jeff Bailey
JeffB Jan 09, 2021 1:20PM ET
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Many that voted for Biden, forgot about Solyndra. They forgot/ignored a lot of things about Biden. We are all soon to be reminded and in 4 years, the wave of red across the country will be staggering!
Chris Sundo
Chris Sundo Jan 09, 2021 1:20PM ET
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Trump is mentally incompetent. USA social fabric is mentally unskilled. Biden is the plug or proxy for a failed supply of competent leadership. Until future leaders get competently trained expect USA's future dark and bankrupt
Casador Del Oso
Casador Del Oso Jan 09, 2021 1:05PM ET
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Biden's energy plan is easier said than done assuming he doesn't back pedal on this campaign promise
Horde NotTrade
Horde NotTrade Jan 09, 2021 1:03PM ET
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lol America is done
Mo Ali
Av8er31 Jan 09, 2021 1:03PM ET
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100%. Everyone in the international community knows this too.
Mike McCabe
Mike McCabe Jan 09, 2021 1:02PM ET
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What company makes the individual solar cells that go into the panels and modules? China?
Kaveh Sun
Kaveh Sun Jan 09, 2021 10:28AM ET
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He will give money to new fail companies to create ‘green jobs’ and all will bk after the fund runs out just like Obama did.
Mike McCabe
Mike McCabe Jan 09, 2021 10:28AM ET
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Like...shovel ready jobs under the Obama/Biden regime.
Roger Miller
Roger Miller Jan 09, 2021 9:30AM ET
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How does Biden’s plan compare to Obama’s? Will Biden’s plan create just as many green jobs?
Mike McCabe
Mike McCabe Jan 09, 2021 9:30AM ET
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Biden is a plagerist. Green jobs are really shovel ready jobs when he was under obama.
 
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