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First Solar stock still has room to run even after rising more than 60% this year, according to Bank of America. Analyst Julien Dumoulin-Smith raised his price objective on First Solar, and reiterated a buy rating on the Arizona-based company, after its latest earnings results. Although First Solar’s third-quarter results missed profit and sales estimates, they show that the case for the solar company’s growth prospects remains intact, the analyst said. “While 3Q/FY22 earnings were disappointing, we expect this and see a more positive turnaround than the Street appreciates, in our view, for 2023,” Dumoulin-Smith wrote in a Friday note. “All told, the 3Q update proves the start of a new US solar panel supply backdrop, where Inflation Reduction Act (IRA) incentives and trade issues provide premium prices to manufacturers who are able to offer developers thinking about their long-term panel supply. . We reiterate the rating Our buy on FSLR, as we expect current prices and demand to support significant core earnings growth through 2027+,” added Dumoulin-Smith. Some investors have expressed concern that growth expectations for First Solar may be overstated after solar shares surged more than 60% this year. They argue that alternative energy equipment makers may not be able to compete with Chinese solar companies if there is an increase in US/China trade relations, or an increase in Chinese investment in the US. However, Bank of America remains bullish on First Solar, as it is. “almost fully booked until 2026,” and expanding its “competitive position” overseas. Dumoulin-Smith raised his price target to $165, up from $138, representing about 24.4% upside from Friday’s closing price of $132.67. Shares rose nearly 11% during Monday trading. Also, the analyst said First Solar may not need to raise new equity for the $1.5 billion investment to build its US capacity. First Solar can use customer prepayments and annual cash flow to cover any shortfall, according to the note. “While we expect FSLR to receive billions in cash value from the production tax credit (PTC), PTC is unlikely to reach FSLR’s balance sheet until 2024, at the earliest. Therefore, a funding gap exists between receipt of tax credits and FSLR 2023 Capex expenditure /2024 to support the 4.4 GW capacity expansion and state-of-the-art Ohio R&D center,” the analyst said. Customer prepayments and approximately $1.8 billion in net cash at the end of 2022, plus annual cash flow from operations, however, means First Solar will not “need to raise new equity to fund short-term capital expenditures. If there is, we expect FSLR to leverage the financing bridge to ensure short-term liquidity, which will be paid by FSLR following receipt of PTC. This is an underappreciated positive differentiating factor,” Bank of America said. — CNBC’s Michael Bloom contributed to this report.
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