New US Facilities And Technology Advancements Will Boost Future Production Capacity

Key Takeaways

• Expansion plans and innovative technologies could boost revenue and margins, positioning First Solar for domestic demand growth.
  
• Strong backlog and policy support enhance revenue visibility, cash flow, and financial performance from 2026 onwards.
  
• Manufacturing issues, policy uncertainty, and production curtailments are affecting profit margins and long-term earnings potential, while legal challenges pose additional financial risks.

Catalysts

A solar technology company, provides photovoltaic (PV) solar energy solutions in the United States, France, India, Chile, and internationally.

• First Solar's expansion plans, including the $1.1 billion Louisiana manufacturing facility expected to begin commercial operations in the second half of the year, could significantly increase global nameplate manufacturing capacity, potentially boosting future revenue and operating income.
  
• The company's strategy of integrating innovative technologies such as the CuRe modules and perovskite development could lead to higher efficiency products and cost reductions, potentially enhancing net margins and earnings.
  
• Despite current cost challenges, the growth in production capacity, including the ramp-up in U.S. facilities, positions First Solar to take advantage of increasing domestic solar demand, likely boosting future revenue.
  
• First Solar's significant contracted backlog of 68.5 gigawatts, with potential ASP increases through technology improvements and commodity price adjusters, provides revenue visibility and the opportunity to enhance earnings from 2026 onwards.
  
• Strategic actions and policies favoring domestic manufacturing, coupled with First Solar's capacity to leverage tax credits like Section 45X, could support continued cash flow generation and financial flexibility, possibly leading to improved net margins and strengthened financial performance.

First Solar Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Solar's revenue will grow by 19.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.7% today to 46.2% in 3 years time.
• Analysts expect earnings to reach $3.3 billion (and earnings per share of $30.74) by about March 2028, up from $1.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.8 billion in earnings, and the most bearish expecting $2.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, down from 10.6x today. This future PE is lower than the current PE for the US Semiconductor industry at 29.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.65%, as per the Simply Wall St company report.

First Solar Future Earnings Per Share Growth

Risks

• The underperformance of Series 7 modules due to manufacturing issues led to warranty charges and shipment delays, impacting earnings and potentially future sales revenue.
  
• Uncertainty in the U.S. policy environment and potential tariffs on international products contribute to volatility in future revenue projections and customer procurement decisions.
  
• The curtailment of 1 gigawatt production in Vietnam and Malaysia due to supply-demand imbalances increases the cost per watt produced, affecting profit margins.
  
• Increased reliance on warehousing and inventory storage due to shipment timing and customer demand variability may lead to elevated period costs that could hinder net margins.
  
• Ongoing intellectual property disputes and legal challenges within the industry pose a risk to financial stability and could divert resources away from growth initiatives, impacting long-term earnings potential.

Valuation

• The analysts have a consensus price target of $243.205 for First Solar based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $304.0, and the most bearish reporting a price target of just $145.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.2 billion, earnings will come to $3.3 billion, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 8.6%.
• Given the current share price of $127.34, the analyst price target of $243.2 is 47.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.