First Solar, Inc. (NASDAQ:FSLR) has been included in the “Focus list” by Citigroup analyst Shahriar Pourreza. In a note to the investors on Tuesday, Pourreza said that the sector tilt of the firm is supporting the solar downstream companies compared to the upstream manufacturers, and First Solar is the bellwether in the downstream market. The analyst has assigned Buy rating to the company with a price target of $87.
“First Solar’s balance sheet strength and bankability premium should allow it to continue to capture large scale projects in key growth regions globally,” said Pourreza.
Increasing short interest, but growth expected
Short interests in First Solar increased 5.2% to 9.58 million shares, totalling to 13.1% of the company’s float, during a two-week period to July 31. It would take five days to cover the short position. Shares of the company surged 20% year to date till Monday to close at $69.17.
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Among the solar stocks, First Solar is one of the strongest, but is facing competition from SunPower at $34, up 16% year to date. The company will see growth ahead with an increase in solar power consumption. According to the Energy Information Administration, U.S. Solar Power is expected to increase by more than 60% in coming years.
First Solar, a growth stock
However, contrary to this increase, First Solar is expecting its earnings per share to average at $2.60, which is around 30% lower than last year. First Solar expects to receive headwinds from increasing competition, which will lower the price of the solar panel. For the second-quarter, earnings per share of the company came in lower at 4 cents per share, primarily due to delayed projects for which the payment will be received in the future months.
First Solar makes a good stock to invest in, even on the lower earning guidance as the company’s Enterprise to EBITDA ratio stands at 7.67 only, which makes the company “priced relatively low for a solar panel company,” according to The Street. The solar company has enough cash that can be utilized to invest and enhance the efficiency of the solar panels.
Metrics such as low valuation, high investment and low debt suggest that the stock can be held in the portfolio even though the burgeoning competition could narrow down the profit margins and earnings growth.