First Solar’s Stock Boom Brings New Investor Dilemma

It is not unusual to see big stock price moves after earnings. Some companies that beat earnings and revenue expectations are rewarded handily. Shares of First Solar Inc. (NASDAQ: FSLR) surged on Friday after it beat earnings, but the stock price reaction is in conflict with two key analyst upgrades from the same day.

When First Solar reported earnings on Thursday, the net of $36.9 million came to $0.35 in earnings per share on sales of $642 million. These beat expectations, but First Solar shares also got a bump from news of it selling its North America O&M business to NovaSource. Refinitiv was only looking for $0.23 per share.

Perhaps the other news that was received well was that management’s guidance commentary also included a note that the company and its financial results have not been materially affected by the ongoing pandemic. The company played it safe and continued to offer only limited guidance, which should be largely within its control or within reasonable line of sight as of the present time.

Existing shareholders obviously will be happy that the stock rose 13% to $73.00 on three times normal trading volume on Friday. That price appears not only to be a 52-week high, but going back to 2011 when so many alternative energy stocks cratered.

For new investors, there is now a dilemma. First Solar’s consensus analyst price target from Refinitiv already was $56.45 ahead of earnings. Its stock was at $64.46 heading into earnings, and Friday’s 13% gain to $73.00 is at or above two key target prices that were just raised on this same post-earnings reaction.

BofA Securities raised First Solar’s formal rating to Buy from Neutral. The prior price objective of $62 was above-consensus, but that was matched this morning. Does the analyst now have to raise the price target again, or will the firm have to concede, “no you have to wait for a sell-off before buying.” BofA had an Underperform (Sell) rating in place until March 31.

The BofA report talked of many positives: affirmation of intact average selling prices, a tech roadmap for its newest solar panel, higher panel efficiency, continued competitiveness, improving costs and accelerating U.S. demand. That said, the price target bump just doesn’t offer much more enthusiasm at the current stock price.

Raymond James already had an Outperform rating on First Solar. The firm raised its target price to $62 from $72 based on the news. This is similar to the dilemma that BofA has, except this firm at least had an Outperform rating already coming into earnings.

Another target price hike came from Roth Capital. The firm has only a Neutral rating, and it raised its target to $65 from $56. That is now under the current price and only matches where the stock was before earnings.

CFRA maintained its Sell rating after earnings. The independent research firm raised its 12-month target price to $65 from $48, but at these share prices that firm thinks investors are better suited with SunPower Corp. (NASDAQ: SPWR) and Canadian Solar Inc. (NASDAQ: CSIQ) as solar opportunities.

The one call that has been seen so far is from UBS. The firm reiterated its Buy rating and raised its target price to $75 from $63. That is at least above the current share price, but $2 of upside on a $73 stock is far short of the 8% or 10% upside most investors expect from a large-cap stock that is a new investment.

It is never a good idea to use only one brokerage firm’s research in evaluating any stock to buy or sell. Some reports sound very compelling, but the market, valuations or other issues in a company or an industry can wreck even the best story stock’s upside.

Short sellers have been somewhat active in First Solar. The short interest on last look was about 11.5 million shares, or about 15.2% of its float. That also represented more than eight days to cover, and it was higher than the 10.65 million shares short two weeks earlier.

First Solar’s stock was at $55.96 at the end of 2019, so the current price represents a year-to-date gain of 30%. Where the gains get really interesting is against the March panic-selling lows. The stock traded under $30 for three days, and the current $73 share price is up over 14% from those lows.

First Solar is a leader in its field, but new investors now have a dilemma about just how more upside they can realistically expect from blindly chasing the stock.

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