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First Solar (NASDAQ:FSLR) shares were upgraded to Buy from Neutral, with the price target on the stock lifted to $141 from $104.50 at BofA Securities on Friday.
An analyst said that after unpacking the Inflation Reduction Act (IRA), the “results are striking,” having initially not appreciated the magnitude of IRA credits that accrue to First Solar.
“Recent conversations with management lend confidence to baking in significant valuation uplift from IRA credits,” said the analyst. ‘We estimate credits enable >$3Bn in cash on B/S by 2026, i.e. 25% of market cap or $28/sh. We believe this level of cash on B/S from IRA is unappreciated by the Street.”
The analyst explained that it is unclear to them how First Solar would leverage the cash, but with stock buybacks and dividends unlikely, the only avenue they see is growth.
“We see US / global expansion, or accretive M&A, as the likely decision tree here. All said, IRA mitigates competition risk by enabling FSLR to scale global capacity at zero cost of capital, prompting extensive capacity growth which backstops profits against ASP erosion. We acknowledge the scale of cash from outsized benefits could pose risk of policy revisions, although we see a runway through mid-decade at a minimum, which implies still billions of NT cash credits,” added the analyst.
