First Solar Inc. (FSLR) rallied to the highest high since April 2018 earlier this month after the Arizona-based manufacturer beat top and bottom line Q2 2020 estimates, earning $0.35 per-share on $642.41 million in revenue. A project sale drove the 9.8% year-over-year revenue increase, adding to investor optimism about a realigned business strategy following years of sub-par performance.
New California Law Will Increase First Solar Revenue
The company stands to benefit from a California law that mandates solar on all new residential and commercial construction, starting in 2020. The power grid in that state has been shaky at best, with massive blackouts due to unusually hot summer conditions. Locals have been reluctant to fund utility companies in recent years, with that negligence now coming home to roost. Taken together with the long-term transition into alternative energy sources, the stock and solar sector could trade much higher in coming years.
Bank of America Securities analyst Julien Dumoulin-Smith upgraded First Solar from ‘Neutral’ to ‘Buy’ after the quarterly release, noting the company should benefit from positive solar sales trends in the United States, especially with commercial and industrial customers. He states the ongoing shift to new CuRe technology will improve efficiency in wattage and energy density while “cost reductions with CuRe and incremental capacity through site optimization should continue to trend well.”
Wall Street And Technical Outlook
Wall Street has ignored the stock in recent years, issuing a ‘Hold’ rating based upon 4 ‘Buy’, 4 ‘Hold’, and 3 ‘Sell’ recommendations. Price targets currently range from a low of $38 to a street-high $82 while the stock is now trading just $5 below the high target. The street-high makes perfect sense in this case because resistance in the upper 70s has acted as an impenetrable barrier since it was broken on heavy volume in 2011.
Technically speaking, First Solar has rallied into resistance at the top of a multiyear trading range, raising odds for a downside reversal that could easily shed 20 to 30 points, However, the recent buying surge marks the 7th trip into range resistance since 2014, with each test raising odds for a breakout. Accumulation readings don’t support additional upside just yet but that could change in coming years, finally lifting the stock into market leadership.