First Solar to Benefit More Than Most From IRA - KeyBanc

© Reuters. First Solar (FSLR) to Benefit More than Most from IRA - KeyBanc

By Sam Boughedda

A KeyBanc Capital markets analyst upgraded shares of First Solar (NASDAQ:FSLR) to Overweight on Thursday, establishing a $145 per share price target.

The analyst said that following a turbulent week in the renewables space featuring earnings commentary, a surprising federal policy development, and outsized stock moves, they are refreshing their views on individual names in the space.

The emergence of the compromise and the subsequent passing of the Inflation Reduction Act of 2022 (IRA) by the Senate over the weekend translated into substantial enthusiasm around the space, which we think is justified and will continue," said the analyst. "The IRA, which is poised to pass the House soon, will become the most durable policy framework aimed to incentivize renewable energy adoption in decades, in our view."

However, the analyst feels that while all of the names in the firm's Alternative Energy coverage are poised to benefit, some will benefit more than others, with First Solar expected to benefit more than most.

"The introduction of the manufacturing tax credit for domestically produced solar panels makes FSLR the most direct immediate beneficiary of the policy in our coverage, in our view. Despite relative outperformance, since the news of the IRA compromise broke (FLSR up 17.0% vs. NEX up 7.0% and Nasdaq up 7.2%), we see further upside, particularly given the company's progress towards capacity additions and efforts towards reducing sensitivity to input costs," added the analyst.

"We estimate that with just the existing and announced capacity, FSLR could be eligible for as much as ~$400M in tax credits (exceeding its tax appetite - more on it below), and should achieve at least a 20% gross margin by 2025 on $3B+ in sales. Given FLSR's historically significant operating leverage, we expect its earnings power to reach $5.78 before tax credits or giving it any recognition for potential future capacity build-out."