VALUATION HIGHLIGHTS

1. Photovoltaic Modules constitute 90% of the Trefis price estimate for First Solar's stock.

WHAT HAS CHANGED?

Q4 2023 Earnings

First Solar posted a mixed set of Q4 FY'23 results. Revenue rose by 16% year-over-year to $1.16 billion, driven by higher module volumes sold and rising average selling prices, although they came in short of estimates. Earnings beat estimates coming in at $3.25 per share compared to a loss during the year-ago period. First Solar's profitability has improved in recent quarters, driven by higher economies of scale from rising shipments, improving average selling prices as well as lower costs, and easing supply chain issues. Margins also benefited from sales under the Section 45X tax credit, which incentivizes domestic production of solar components.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of First Solar's value that present opportunities for upside or downside to the current Trefis price estimate for First Solar:

PV Solar Module Revenues

• Module Revenues : First Solar's PV module revenues grew from around $500 million in 2018 to $2.43 billion in 2022, driven by surging demand. Trefis expects the metric to grow to about $9.7 billion by 2029. However, if the metric rises to over $12 billion, there could be a 20% upside to our price estimate. On the other side, if the metric only grows to about $8 billion, there could be a 20% downside to our price estimate.

BUSINESS SUMMARY

First Solar is engaged in the manufacture and sale of solar modules based on Cadmium-telluride thin-film semiconductor technology. In addition, the firm also designs, constructs, and sells photovoltaic (PV) solar power systems. The company operates in two main business segments: the components segment and the systems segment. The components segment is responsible for the design, manufacture, and sale of solar modules to solar project developers and system integrators. The systems segment provides PV solar power systems for commercial systems, which includes project development, engineering, procurement and construction (EPC), and operating and maintenance (O&M) services.

SOURCES OF VALUE

The PV Solar Systems division is the primary source of value for the company for the following reasons:

Growth in Markets Outside North America

First Solar's systems business is presently largely centered around the U.S. market. However, the company has a lot of opportunities overseas, particularly in markets like Latin America where electricity rates are high and consumption growth is much stronger than in the United States. Other growth markets include the Middle East, India, Asia Pacific, and China. The company has indicated that over half of its new systems booking opportunities (in terms of system capacity) come from overseas.

KEY TRENDS

First Solar's Cd-Te technology has potential

First Solar's panel efficiency gains have been outpacing the broader industry over the past few years. The Cd-Te thin film technology that the company deploys has a higher theoretical upper limit for efficiency compared to silicon-based panels, and we see this as providing a competitive advantage over the long term. Higher efficiency panels help to reduce manufacturing costs, as they require fewer consumables and raw materials to produce each watt of capacity.

Consolidation within the solar industry

The global economic crisis had a profound impact on the solar industry. The rise in energy prices before the economic downturn led many solar manufacturers to increase capacity. This helped certain manufacturers as they benefited from economies of scale which in turn helped reduce prices. However, due to the credit contraction that occurred during the financial crisis, the installation of solar power systems declined significantly. The economic crisis impacted demand for everything ranging from polysilicon to rooftop panels. As a result, many smaller players with weak balance sheets have been struggling which has led to consolidation in the industry.