Should the Hype for First Solar (FLSR) Stock Continue?

Printing a fresh all-time high of $281 a share this week, First Solar FSLR stock regained bullish momentum after its Q3 report last Thursday.

The 20% rally over the last month has added to pleasant year-to-date gains of +50%, with the five-year performance for FSLR now at +200%.

Increased government spending on renewable energy and a more favorable regulatory environment have led to much hype for the largest solar panel manufacturer in the U.S. amid plans to expand its domestic manufacturing footprint.

Record Module Shipments Highlighted First Solar’s Q3 Results

Although First Solar missed lofty Q3 expectations, record solar module shipments lifted investor sentiment and highlighted the company’s stellar growth from the prior year quarter.

Showcasing robust momentum, First Solar’s Q3 sales soared 80% from $887.67 million a year ago to $1.59 billion, but very slightly missed estimates. Quarterly earnings of $4.24 per share spiked 46% from EPS of $2.91 in Q3 2024, with expectations at $4.32. First Solar signed 2.7 gigawatts (GW) in new gross bookings during Q3, with a peak in module shipments of 5.3 GW.

First Solar’s Narrowed Guidance & Record Backlog   

Further captivating investors is that First Solar currently has a record 53.7 GW backlog of solar module bookings valued at $16.4 billion. Signaling strong demand and long-term revenue visibility, this has supported First Solar’s expansion plans, including a new 3.7 GW factory in the U.S.

In regard to guidance, First Solar now expects full-year EPS in the range of $14.00-$15.00, narrowed from a previous forecast of $13.50-$16.50. The updated EPS guidance would reflect a 16%-25% increase from earnings of $12.02 per share in FY24.

Balancing short-term caution with long-term confidence, First Solar revised its full-year revenue outlook to $4.95-$5.2 billion from $4.9-$5.7 billion. These updated marks reflect 17%-23% growth from annual revenue of $4.21 billion last year.  

First Solar’s Efficiency Metrics

Despite trimming the top end of its guidance, First Solar’s free cash flow (FCF) reassured investors after hitting a quarterly high of $376 million and climbing from $76 million in the comparative quarter. Along with improved margins and disciplined capital spending, favorable tax credits have also driven First Solar’s FCF growth.

It’s noteworthy that First Solar has achieved a positive FCF conversion rate for the first time at over 40%. While this is a ways away from the preferred mark of 80% or higher, First Solar is finally on track to transition from a growth-heavy cash-burning phase to a more balanced and cash-generative business model.

Also indicating that First Solar’s expansion as a leader in a still somewhat emerging market is paying off is that the company’s return on investment capital (ROIC) is at 14% as shown below, with the optimum level being 10% or higher.

Monitoring First Solar’s Valuation

Suggesting that the hype for First Solar could continue is that FSLR is still trading at a reasonable 18X forward earnings multiple. Offering a nice discount to the benchmark S&P 500’s 25X, FSLR trades roughly on par with its Zacks Solar Industry average. FSLR is commanding a modest premium relative to its peers in terms of price to forward sales at 5X, with the industry average at less than 2X. That said, First Solar’s P/S ratio is mirroring the broader market.

Bottom Line

First Solar stock currently lands a Zacks Rank #3 (Hold) as FY25 EPS revisions have declined in the last 30 days, although FY26 EPS revisions are noticeably higher. Undoubtedly, FSLR has remained one of the most intriguing long-term investments as it relates to the future of renewable energy. This hyped sentiment will likely continue if First Solar keeps improving its efficiency metrics, especially its free cash flow conversion rate.

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This article originally published on Zacks Investment Research (zacks.com).

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