UBS published a very bullish note on First Solar (FSLR US) overnight, reinforcing the view that MM has held for some time – the stock popped over 8% and now looks set to make new highs. For context, UBS had not been positive on First Solar, viewing it as a high-cost US solar module manufacturer that was disadvantaged against low-cost suppliers in China. That view has changed due to the US. imposition of tariffs on China and domestic manufacturing tax credits under the Inflation Reduction Act. This is clearly positive, although this part is not new news.
- The UBS note was designed to get attention, it’s hard to imagine a sentence filled with more buzz words; First Solar is uniquely positioned to benefit from rising electricity demand from artificial intelligence as Big Tech companies seek clean energy to power the proliferation of data centers.
They talked about the big energy demand uplift from AI, which uses 10 times more electricity than traditional Google search, while all big tech such as, Amazon, Microsoft, Meta and Alphabet have committed to buying renewable power that matches their consumption.
Clearly, the demand side of the equation is strong, however, many companies struggle with supply, however, we think First Solar is well positioned here. FSLR has been aggressively ramping up their capacity and importantly, they are more vertically integrated than others with their own supply chain, sourcing only glass and some raw materials from other suppliers. They manufacture most modules in Ohio , but have plans to triple capacity with new factories in Alabama and Louisiana. This will also allow First Solar customers to benefit from the 10% domestic content tax credit.
- On the recent earnings call, the CEO Mark Widmar told us that he is seeing a “meaningful increase in demand expectations driven in part by data centre load growth.” This is a theme MM has backed in multiple ways across portfolios, and we think there is a long runway ahead.
This all bodes well for higher earnings, the UBS analyst overnight expects a 374% increase out to 2027, which would imply EPS of $36.74 per share, or around 16% ahead of current consensus ($31) making this a very bullish call. This underpins their $270 price target, although they’re not alone, Goldman has a $268 PT while Guggenheim is the most bullish with a $356 target. Of the 38 analysts that cover the stock, 32 have buys and 6 have holds.
- First Solar is growing strongly, yet on FY24 consensus earnings, it’s on a PE of 15.6x which drops to 10.5x in FY25 and 7x in FY26. A lot can happen between now and then, however, we think this is the most attractively priced growth company in our universe, with incredible tailwinds in the coming years.
MM is long & bullish FSLR US
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