How does the old saying go? It’s always darkest before dawn? First Solar, Inc. (NASDAQ:FSLR) can certainly attest to this. As of April, FSLR stock was moving deeper into multi-year-low territory, and couldn’t even buy a friend on Wall Street. Since that low, First Solar shares have almost doubled in value, and the company has been upgraded more than a few times.
That’s quite the turnaround.
The reversal of fortune of course begs a handful of questions, not the least of which is whether or not this new-found bullishness is built to last.
Obviously there are never any outright guarantees in this business, and no rally lasts forever. But yes, FSLR is the beneficiary of a sea change here.
An Unexpected Upgrade
The prod for today’s 4%-plus bullish romp from FSLR stock is an upgrade from Axiom’s Gordon Johnson, who upped his rating on the company from a “Hold” to a “Buy,” and simultaneously raised his price target on FSLR stock to $51. He explained:
“Our checks suggest FSLR has delayed its transition to Series 6 technology, instead running its Series 4 production lines longer to accommodate Section 201-based demand (our contacts indicate FSLR is sold out through 3Q18)… With 7 BUYS & 13 HOLDS, we see sell-side sentiment as skewed too negatively (a number of upgrades could be on tap). Annualizing our 3Q17 EPS est. of c80 & applying a mid-cycle 16x P/E multiple, we derive a fwrd. 12-mo. PT of $51.”
A couple of items within the assessment stick out like a sore thumb, but most unusual is that fact that Johnson has turned bullish in the first place.
See, it was only in February of this year that the very same Gordon Johnson hated First Solar, rating it a “Sell” and suggesting FSLR stock was only worth $21. He pulled no punches then, bluntly noting:
“The company has had – quite geniusly, I might add – a number of projects that allow them to report earnings that we believe were much higher than what [would] have been reported. Now those projects are gone. So now the company has to compete on the merits of its technology, and, quite frankly, I don’t think they can compete against the Chinese.”
Given Johnson’s successful bearish track record with other solar stocks — he accurately predicted the implosion of Sunedison Inc (OTCMKTS:SUNEQ) last year — the 180-degree turnaround had to be a tough call to make. But, it’s clearly one he felt had to happen.
Be that as it may, Johnson is right either way about the number of analysts who aren’t impressed by First Solar right now, and the number that are. There are still far more of the former, leaving the door open to future upgrades that will prod the stock higher.
Indeed, notice this sentiment shift towards more bullishness is already underway.
There’s room for more bullish opinions, though.
Rally Already Started
And those still-unconvinced analysts increasingly have a reason to dish out the aforementioned upgrades.
Few care to admit it, but analysts are just as guilty of chasing performance as the average retail investor, meaning they don’t want to miss out on a rally with a mere “Hold” rating on the stock. And in the case of First Solar shares, the beginning of the technical rally has already been confirmed.
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Serge Berger made the call a week ago, pointing out how FSLR stock had moved above all of its key moving average lines as well as cleared falling, straight-line resistance. Since then, First Solar shares have only put more distance between them and its previous ceiling.
The red-hot short-term rally is still apt to be a setup for a profit-taking pullback. That pullback, though still isn’t likely to drag the stock back under its former resistance lines.
Bottom Line for FSLR Stock
Caution is advised for any newcomer looking to get into the stock today. With Wednesday’s rally factored in, FSLR is up 78% from April’s low, and up 16% in the past week and a half alone. That’s going to make it a tough act to follow … in the short run.
After any decent pullback though, this is a name that’s on the tail end of a paradigm shift to bullishness.
First Solar remains plenty speculative, but that doesn’t mean it’s a bad bet. In fact, from an odds-making perspective, it’s quickly becoming a very good bet.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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