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First Solar stock faces substantial risks but a 25% jump is likely

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First Solar (FSLR) stock price went parabolic on Wednesday as investors cheered Kamala Harris’ performance on the debate stage. The stock soared by over 15%, its best single-day jump since May when it published encouraging financial results. It soared to a high of $240, 22% higher than its lowest point in August.

Kamala Harris debate performance

First Solar and other solar-related companies surged after the first – and final debate – between Donald Trump and Kamala Harris. SunRun shares jumped by over 12% while Enphase Energy soared by over 5%. 

SolarEdge stock jumped by over 8% while the closely-watched iShares Global Clean Energy ETF (ICLN), which tracks the top companies in the solar and wind industries, rose by over 3%.

This performance is primarily because of the debate, in which most analysts argued that Trump lost to Harris. Data by Polymarket shows that Harris has a 50% chance of winning the election compared to Trump’s 49%. 

The debate was notable because it introduced Harris to most Americans, especially the independent ones. 

Therefore, solar energy stocks jumped because Harris has promoted climate change as one of her top agendas. Trump, on the other hand, has focused most of his attention to fossil fuels. He also criticised solar energy for taking so much desert land. 

The reality, however, is that stocks that are expected to do well during a presidential term rarely do. A good example of this is companies in the clean energy and prison industries.

When Biden came to power, the theory was that clean energy stocks would soar while fossil fuel ones would underperform. Besides, under Biden, the government passed several bills to promote the transition, including the Inflation Reduction Act (IRA). 

However, in reality, companies in the fossil fuel industry have thrived under Biden as US production has surged to over 13 million barrels a day. ExxonMobil’s annual revenue soared from $255 billion in 2019 to over $334 billion in the last financial year. Similarly, Devon Energy’s revenue soared from $6.6 billion in 2019 to over $14.4 billion. 

On the other hand, prison and gun-related stocks were expected to crash during the Biden presidency. In reality, Geo Group stock soared to a multi-year high of $18 earlier this year, up by 264% from its lowest point in 2022. CoreCivic also jumped to a high of $16.5, up sharply from the 2021 low of $5.5. 

Gun manufacturing companies like Vista Outdoor, Ammo, Smith & Wesson Brands, and Sturm, Ruger & Company have also done better than expected under Biden.

Read more: Can Kamala Harris defeat Donald Trump in the 2024 US Presidential elections?

FSLR business is doing well but facing challenges

First Solar,a top US solar panel manufacturer, is doing well even as it faces substantial challenges. 

Like other solar companies, a key challenge is the high interest rate environment, that has led to weaker demand in the US. When Biden came in, the US had zero interest rates, which made installation relatively affordable to most people. 

Interest rates have now surged to a muli-decade high of 5.50% as the Fed worked to slow inflation. This high-rate environment has made solar installation a lower priority for most Americans.

Second, the company has suffered as the trend in ESG has waned in the past few quarters. The most recent data shows that global investors have withdrawn a net of $40 billion from sustainability-focused funds this year. Solar companies formed a key pillar of the ESG movement. 

Third, First Solar is contending with increased supply by Chinese solar panel manufacturers, who have flooded the market. 

As a result, the company’s revenue growth has not been all that strong. Its revenue in the last financial year stood at over $3.3 billion, a small increase from the $3 billion it made in 2018. 

First Solar earnings download

The most recent results showed that First Solar’s revenue for the second quarter rose to $1.01 billion, higher than the $810 million it made in the same quarter last year. Its net income almost doubled to over $349 million. For the year’s first half, the company’s net income rose to over $583 million.

The management hopes that the company will continue doing well. It recently commissioned the expansion work at its Ohio plant while its Alabama facility will start production soon. Its Louisiana facility, with expected capacity of 14.1 GW is expected to come online next year. 

Analysts expect that First Solar’s revenue will be $4.48 billion this year, a 35% increase from last year. Revenues will jump to $5.6 billion next year. 

First Solar stock price analysis

First Solar stock chart by TradingView

Turning to the weekly chart, we see that the FSLR stock price formed a golden cross pattern in August 2022 as the 50-week and 20-week moving averages crossed each other. It then peaked at $306 in August. 

The stock has remained above the 50-week and 200-week Exponential Moving Averages (EMA), meaning that bulls are now in control. 

It has also jumped above the key resistance point at $231, the upper side of the cup and handle pattern. 

Therefore, the stock will likely continue rising as bulls target the next key resistance point at $300, which is about 25% above the current level. This rally will happen as the Fed starts cutting rates and as the election nears.

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