Green energy firm First Solar (NASDAQ:FSLR) — billed as a leading global provider of photovoltaic (PV) solar solutions — is dominating business headlines today thanks to positive legislative momentum. Yesterday afternoon, the Senate passed a sweeping bill named the Inflation Reduction Act, which among healthcare and tax implications also earmarks about $369 billion for climate change provisions. As a result, FSLR stock is up about 7% in the afternoon session.
According to JPMorgan Chase analyst Mark Strouse, First Solar has nearly 3 gigawatts (GW) of U.S.-based module capacity, which will expand to 5.9 GW by year-end 2024. This expansion will qualify it for domestic manufacturing tax credits, with the net value of the credits potentially adding $931 million to the company’s 2024 net income.
In turn, Strouse upgraded FSLR stock to “overweight” from “neutral.” As well, JPMorgan increased its price target to $126 from $83 per share.
Strouse wasn’t the only investment expert that was bullish on FSLR stock. Earlier today, analysts at Guggenheim upgraded shares to “buy” from “neutral,” while maintaining a $135 price target. On Aug. 3, Piper Sandler increased its price target to $120 from $90, while assigning an “overweight” rating for First Solar in its research report.
FSLR Stock is Promising but Challenges Remain
A significant portion of the enthusiasm focuses on Senator Joe Manchin, a key swing vote. In the razor-thin advantage that Democrats have in the Senate, Manchin has previously presented roadblocks to his own party. However, with his blessings, the Inflation Reduction Act now goes to the House of Representatives.
There, the left-controlled lower chamber of Congress will likely take up the legislation on Friday, Aug. 12. As CNN notes, the House must approve the bill before President Joe Biden can sign it into law.
Generally, the consensus for FSLR stock is positive, with the underlying company likely to be the biggest beneficiary of the act. However, investors will want to be careful as this piece of legislation may not be a comprehensive panacea for First Solar.
As Needham analyst Vikram Bagri noted, FSLR stock may be fairly valued and thus maintains a “hold” rating on shares. Earlier, First Solar “lowered its fiscal-year per-share guidance to a range from a loss of 25 cents to earnings of 25 cents, down from a previous range from breakeven to earnings of 60 cents,” per Barron’s description.
While the company in the second quarter reported unadjusted earnings of 52 cents per share — beating out the consensus estimate for a loss of 36 cents a share — “Bagri noted that the beat was driven by about $232 million in post-tax gains from the sale of First Solar’s Japan business, offset by Chile business impairments. The company would have lost 89 cents per share in the quarter if those items were excluded, he reckoned.”
Why It Matters
Due to Russia’s invasion of Ukraine, energy infrastructure represents a hot topic. In March of this year, European leaders have begun aggressively pivoting toward alternative solutions such as building up solar infrastructures. Therefore, the Inflation Reduction Act — while presenting no guarantees — represents another fundamental catalyst for the broader renewable energy sector.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
