The clean energy market is still booming, but Deutsche Bank doesn’t see a bright future ahead for one of the sector’s leaders. The Wall Street institution recently downgraded First Solar (NASDAQ:FSLR). FLSR stock has spent the last six months climbing very steadily. But now the investment bank sees it as a company with limited potential and has downgraded it from a “buy” to a “hold.”
After a recent rally, analyst Corinne Blanchard sees it as an expensive pick among solar stocks. Instead, the expert believes investors should focus on other companies, specifically Enphase Energy (NASDAQ:ENPH), as an alternative way to play the solar energy boom.
Does this mean investors should avoid FSLR stock and shift their focus elsewhere? Let’s dive deeper into the two companies and the analyst’s predictions.
A Closer Look at Solar Stocks
Both solar stocks named by Blanchard are rising today, though Enphase is substantially outperforming First Solar. While the latter has risen more than 65% over the past six months, the former is down 15% for the same period. As Blanchard sees it, this elevated price is cause enough to avoid FSLR stock and double down on ENPH. The analyst recently addressed this in a note to clients:
“We believe that this is an opportune moment for investors to look for better risk/reward elsewhere. We remain positive on the fundamentals of the company, given a strong backlog through the coming years, with improved [average selling price]. Yet, we believe that the current stock price … represents an expensive entry point for investors; we would see a valuation range of below $200/sh as more attractive.”
Blanchard’s argument makes sense, as First Solar is certainly priced highly among solar stocks. However, it’s worth noting that the two companies offer different things. While First Solar deals primarily in solar energy tech, Enphase has expanded into multiple other clean energy spaces, including battery energy storage and bidirectional electric vehicle (EV) charging. Comparing the two so closely almost doesn’t seem fair, as Enphase offers investors exposure to several booming sectors while First Solar remains focused on one.
Some experts have issued similar takes. Alex Wah, founder and chief investment officer of hedge fund Prince Capital sees both solar stocks benefiting from climate-friendly legislation on both the subsidy and direct regulation side climate provisions in the Inflation Reduction Act. “They are both richly valued though so investors should be careful and make sure they fully understand the fundamentals of the companies,” he notes in an email to InvestorPlace.
What Comes Next
That said, First Solar still has plenty to recommend it. InvestorPlace contributor Faizan Farooque recently noted that it is “projecting net sales of $3.4 billion to $3.6 billion for 2023, representing a growth rate of at least 30% from the previous year. Earnings per share are forecasted at $7 to $8, a significant improvement over 2022’s net loss of $0.41.” Those numbers suggest that the company may indeed be headed for more growth, even if its valuation is high.
Other experts remain highly bullish on FSLR stock. Fellow contributor Larry Ramer predicts it will hit $1,000 per share by 2030. That price target may seem overly ambitious to some. Still, the company is a leader among solar photovoltaic (PV) producers, and demand for that technology is expected to remain robust throughout the coming years.
On the date of publication, Samuel O’Brient 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.
