The solar sector has snapped from a months-long selloff after the largest U.S. solar module manufacturer, First Solar Inc. (NASDAQ:FSLR), beat Wall Street’s earnings estimate and also issued robust 2024 guidance. First Solar reported Q4 2023 GAAP EPS of $3.25, $0.13 above the Wall Street consensus while revenue of $1.16B was good for a healthy 16.0% Y/Y growth despite missing the consensus by $160M. Fourth-quarter earnings swung to a profit of $349M from a loss of $7.5M in the year-earlier quarter. First Solar finished the year with net bookings of 28.3 GW at a base ASP of 31.8 c/w and net cash balance of $1.6 billion.
First Solar issued FY 2024 guidance of $13-$14 earnings per share, nearly double full-year 2023 EPS of $7.74, and projected 2024 revenue to clock in at $4.4B-$4.6B, good for 36.4% Y/Y growth at the mid-point. Wall Street consensus estimates of 2024 earnings and revenue are $13.26 EPS and $4.56B, respectively. The company provided additional full-year forecast as follows:
- Sales volumes of 15.6-16.3 GW
- Gross profit of $2B-$2.1B
- Operating income of $1.5B-$1.6B, which includes anticipated Section 45X tax credits of $1B-$1.05B
- Production start-up expense of $85M-$95M
- Year-end net cash balance at $900M-$1.2B
"Few years have been as consequential to our long-term growth strategy as 2023," First Solar CEO Mark Widmar said at the earnings call, adding that the company scaled manufacturing capacity, produced and shipped a record volume of modules.
"Our current backlog, cumulatively oversold through 2026 and with bookings extending to the end of the decade, provides us with optionality in periods of pricing and policy uncertainty.Put simply, if we did not book any more deals by the end of the year, we would remain sold out two years forward through 2025 and 2026," First Solar CFO Alex Bradley said during the call. Related: Crescent Point Energy Lifts Base Dividend as It Turns Profit for Q4
First Solar has been one of the biggest beneficiaries of the Inflation Reduction Act, with tax credits helping to pad the bottom line. Last year, the company agreed to sell $687 million in solar tax credits to fintech company Fiserv Inc. (NYSE: FI).
FSLR shares have jumped 6.2% since Tuesday’s earnings call but remain in the red having returned -12.0% in the year-to-date. The solar sector’s favorite benchmark, Invesco Solar ETF (NYSEARCA:TAN), has notched 2.9% over the past three trading sessions but is down -19.3% YTD and -42.4% over the past 52 weeks.
Inflection Point
Two weeks ago, RBC Capital reported that the solar equipment industry is "near an inflection point," and that sentiment is set to improve thanks to the emergence of more tangible signs of stability. According to RBC's Christopher Dendrinos, the industry "should continue to benefit from a positive rate of change and will continue to see long-term support from public policy, emissions regulation and declining costs," despite both residential and utility scale solar facing near-term headwinds.
Dendrinos has predicted that the solar sector has hit a potential turning point in investor sentiment, adding that expectations for declining interest rates should support improving payback periods. The analyst notes that solar projects can be 3x more sensitive to interest rates than conventional energy projects, and estimates that the levelized cost of solar energy drops by more than 4% for every 50 basis point cut in interest rates.
Dendrinos has tapped First Solar as his top pick in the sector, citing "strong earnings visibility and free cash flow optionality." He expects FSLR stock to outperform its peers given the uncertainty surrounding residential solar demand.
Dendrinos has also recommended Enphase Energy Inc. (NASDAQ:ENPH), citing "industry-leading differentiated technology, and Shoals Technologies Group (NASDAQ:SHLS), noting it trades below peers "despite superior margin profile and growth." The analyst, however, rates SolarEdge Technologies Inc. (NASDAQ:SEDG) at Market Perform, saying overhead is "a margin headwind given current demand."
In separate developments, shares of Enphase Energy and Sunnova Energy International (NYSE:NOVA) are up 5.6% and 9.5%, respectively, in Thursday's intraday session following insider Buy disclosures. Enphase President and CEO Badrinarayanan Kothandaraman has revealed in an SEC filing that he acquired 4K common shares of the company on February 27. The CEO has now purchased a total of 5,118 ENPH shares and has not sold any shares over the past 12 months. Meanwhile, in another SEC filing, Sunnova director Akbar Mohamed has revealed that he has completed the purchase of 152,450 common shares. The director has now bought a total of 162,450 NOVA shares and sold zero shares over the past year.
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By Alex Kimani for Oilprice.com
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