First Solar's 'competitive moat' leads to an upgrade at Morgan Stanley

By Claudia Assis

Morgan Stanley upgrades First Solar's stock to buy

First Solar Inc. is resilient enough to withstand the headwinds hitting alternative-energy stocks, and the stock is at an attractive risk-reward point after a 20% selloff in the last three months.

That's from analysts at Morgan Stanley, who on Friday upgraded First Solar's stock (FSLR) to the equivalent of buy and raised their price target to $237 a share, an upside of more than 60% over Friday prices.

"We believe First Solar offers one of the strongest risk-adjusted earnings profiles," the analysts, led by Andrew Percoco, said in a note.

Clean-energy stocks have been battered this year, thanks to rising interest rates and accompanying fears of a demand slowdown. Solar stocks in particular also have been hit by policy changes in California that have made time frames for recouping investments in solar power less attractive to homeowners.

First Solar, however, enjoys a "near-term competitive moat" as a vertically integrated U.S.-based solar-panel maker, and it has been "a major beneficiary of several recent policy changes in the U.S.," including the Inflation Reduction Act, the analysts said.

The IRA and domestic-content requirements are likely to remain "a key near-term competitive advantage for the company," the analysts said.

There's long-term risk around average selling prices hurting profit margins, but Friday's rating upgrade was warranted, they said, because "we believe [First Solar] provides one of the best risk-adjusted 2- to 3-year forward earnings profiles, at a valuation well below pre-IRA levels, and we see strong upside to current levels even after baking in long-term margin erosion."

Shares of First Solar were a rare spot of green among alternative-energy stocks on Friday. The stock is down nearly 4% this year, contrasting with an advance of around 19% for the S&P 500 index SPX. The Invesco Solar exchange-traded fund TAN has lost about 40% in the same period.

-Claudia Assis

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12-08-23 1316ET

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