FSLR: Domestic Manufacturing Expansion And Policy Tailwinds Will Offset Sector Risks

Key Takeaways

• Strengthened U.S. policies and rapid domestic capacity expansion are improving First Solar's competitive position, boosting demand, margins, and revenue visibility.
  
• Innovations in thin-film technology and a large contracted backlog provide technological leadership, pricing power, and stability against market volatility.
  
• Trade and policy risks, shifting industry demand, intense competition, and credit challenges may significantly threaten First Solar's margins, revenue growth, and financial stability.

Catalysts

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

• Recent U.S. policy changes-specifically, strengthened incentives and tighter restrictions against foreign entities of concern (such as China) under the new reconciliation legislation-are boosting First Solar's competitive moat, supporting robust demand for domestically produced modules, and enabling the company to capture higher long-term contracted pricing, directly improving forward revenue visibility and gross margins.
  
• The company's rapid U.S. manufacturing capacity expansion (including new Alabama and Louisiana facilities coming online) positions it to leverage tax credits, reduce reliance on imports subjected to tariffs, and capture a premium for domestic content, which is expected to lift both revenue growth and operating margins as incremental capacity is utilized over the coming years.
  
• Policy-driven supply chain localization and ongoing trade enforcement (e.g., AD/CVD tariffs, Section 232 investigation) are causing competitors' supply chains to be disrupted or become costlier, increasing customer reliance on First Solar's non-China-based, vertically integrated manufacturing and supporting higher average selling prices and volume commitments-positively impacting revenue and margins.
  
• First Solar continues to innovate in proprietary thin-film technology (CuRe, perovskite development), which has shown performance improvements and positions the company for long-term technological leadership as solar efficiency and durability gain importance, supporting sustained pricing power, margin protection, and upside to future earnings as these technologies are commercialized.
  
• The steadily growing, visibility-rich contracted backlog (currently at $18.5 billion and 64 GW, with price adjusters for tech milestones and tariffs) provides stability against industry volatility; this allows consistent revenue recognition and helps mitigate net margin compression, even amid cyclical and policy-driven swings in global solar markets.

First Solar Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Solar's revenue will grow by 17.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.0% today to 45.7% in 3 years time.
• Analysts expect earnings to reach $3.2 billion (and earnings per share of $29.46) by about September 2028, up from $1.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.9 billion in earnings, and the most bearish expecting $2.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, down from 17.3x today. This future PE is lower than the current PE for the US Semiconductor industry at 33.5x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.17%, as per the Simply Wall St company report.

First Solar Future Earnings Per Share Growth

Risks

• Ongoing global trade policy uncertainty, particularly regarding tariffs on international module imports from Malaysia, Vietnam, and India, poses a risk to First Solar's ability to profitably sell its internationally produced Series 6 modules; inability to recover tariffs from customers could lead to reduced sales volumes, production curtailments, and gross margin compression.
  
• Increasing strategic shift among major European utilities and oil & gas companies away from renewables and back toward fossil fuels may signal plateauing or declining long-term demand for large-scale solar installations, negatively impacting First Solar's future revenue pipeline.
  
• The solar module market remains highly competitive, with continued price pressure and commoditization risk from aggressive Asian manufacturers and the potential for new, higher-efficiency competing technologies (e.g., perovskites, advanced crystalline silicon); this could erode First Solar's gross margins and market share if their technology loses its competitive edge.
  
• First Solar's significant reliance on U.S. policy support-such as manufacturing tax credits, import tariffs, and domestic content requirements-creates exposure to potential shifts or reductions in government incentives or unfavorable changes when current legislation or executive orders are reinterpreted or expire, potentially impacting both revenue and operating income.
  
• Elevated accounts receivable (including overdue customer default payments and unresolved contract terminations), combined with potential litigation/arbitration to recover funds, increases credit risk and may impact free cash flow and earnings stability if recoveries are delayed or unsuccessful.

Valuation

• The analysts have a consensus price target of $220.159 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 $287.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.0 billion, earnings will come to $3.2 billion, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 10.2%.
• Given the current share price of $203.06, the analyst price target of $220.16 is 7.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.