First Solar Inc (NASDAQ: FSLR)
FSLR is a solar technology company that offers photovoltaic cells (PV) solar energy solutions worldwide. It makes and sells PV solar modules using semiconductor technology, offering an alternative to regular crystalline silicon PV solar modules. The company has two segments: Modules Business and Other.
Recommendation Rationale – SELL at USD 171.46
- Profit Booking: FSLR has surpassed the R2 level recommended on 7 February 2024; and thus, it is giving a profit booking opportunity.
- Financial Performance: FLSR long-term debt increased to USD 464.06mn as of December FY23 vs USD 184.34mn as of December FY22. Furthermore, the company’s cash from operating activities declined to USD 602.26mn in FY23 down from USD 873.36mn in FY22.
- Outlook: The company’s operating expenses are estimated to be between USD 455mn and USD 485mn for FY24. Earnings per share expected to range from USD 13.00 to USD 14.00 in FY24.
- Emerging Risks: Losing major customers or having customers and partners unable to fulfill their contracts, technology changes, foreign currency fluctuation, cyber security, and intense competition and regulatory barriers could impact the company’s financials.
- Overvalued Multiples: On forward 12-month forward basis, key valuation multiples (EV/Sales, EV/EBITDA, Price/Earning, Price/Cash Flow, and Price/Book) are higher than the median of the Energy industry.
FSLR Daily Chart
Valuation Methodology: EV/EBITDA Approach (December’FY24E) (Illustrative)
Considering the increased long-term debt, higher selling general and administration expenses, declined cash from operating activities, litigation loss in FY23, and intense competition and regulatory barriers, etc. the company might trade at a slight discount to its peers. For valuation, few peers like Canadian Solar Inc (NASDAQ: CSIQ), Itron Inc (NASDAQ: ITRI), and JinkoSolar Holding Co Ltd (NYSE: JKS), have been considered. Considering that the company has breached its R2 level, current trading levels and risks associated, downside indicated by the valuation, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the closing market price of USD 171.46, up by ~2.84%, as of 4 April 2024.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.
Note 1: Past performance is neither an indicator nor a guarantee of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 4 March 2024. The reference data in this report has been partly sourced from REFINITIV.
Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.