The Inflation Reduction Act of 2022, or IRA, provides $369 billion for climate change and clean energy provisions, explains Scott Chan, editor of The Complete Investor.
First Solar (FSLR) is dominant in cadmium telluride thin-film solar technology, alternative to the more widely used crystalline variety. Thin-film panels’ properties make them suitable for utility-scale projects.
Particularly relevant to First Solar, the new law includes investment and production tax credits for the production of solar panels. For residential and commercial customers, the law extends a 30% tax credit for solar panel and battery storage installation for ten years. Thus, the company will directly benefit from tax credits and from higher demand the tax incentives should generate.
For the world to meet ambitious zero-emission goals, in the years ahead there needs to be tremendous investment into such large-scale projects, which in turn means a great opportunity for First Solar.
In fact, current demand is so robust that how much First Solar can sell is limited only by how much it can produce. Its backlog is so huge that even with expected capacity expansion in the next few years, if a customer wants to place a new order with First Solar today, it will likely have to wait until 2027 for delivery.
In terms of expansion, First Solar has two plants under construction, its third plant in the U.S. (all in Ohio) and its first in India, both expected to be completed next year. The company also recently announced plans to invest $1.2 billion to build a fourth U.S. manufacturing plant, somewhere in the Southeast.
First Solar maintains a strong balance sheet with flexibility to support its expansion plans. The company expects to end 2022 with roughly $1.8 billion in net cash — that’s cash and cash equivalents minus debt.
The stock is valued at about 30x projected 2023 EPS, which is high but not frothy considering the company’s growth prospects. By 2024, EPS is expected to double from 2023 levels (to more than $10 a share) once the two plants under construction reach commercial production.
We wouldn’t quarrel with anyone who wants to take some gains off the table, but we think it would be a mistake to sell entirely. We believe FSLR has a good chance to eclipse $200 within the next two years.