Relative valuation offers a quick way to benchmark a company’s valuation with its industry peers’ valuations. The most common measure of relative valuation is the price-to-earnings multiple (PE multiple). However, other measures—such as price-to-book value and enterprise value–to–EBITDA[1. Earnings before interest, tax, depreciation, and amortization]—also find use in specific cases.
For the past couple of years, First Solar (FSLR) has been trading at a discount to its solar power industry (TAN) peers like SunPower (SPWR), Yingli Green Energy (YGE), and SunEdison (SUNE) on most relative valuation measures. First, Solar’s PE multiple of 17.5x has been lower than the industry average of 22.4x. However, it has outperformed (traded at a premium) over the past three months with a PE multiple of 17.5x against an industry average of 16.5x.
Out of 19 analysts covering First Solar, eight (42.1%) have recommended a “buy” and ten (52.6%) have recommended a “hold,” while only one has recommended a “sell” rating on the company. The consensus target price for the next 12 months is $63.71 against a market price of $60.61 at the end of March 6, 2015.
Brean Capital is most bullish of all, with a price target of $83 assigned in February 2015. Axiom Capital was most bearish, with a target of $30, also assigned in February 2015.
Among notable investment banks, Credit Suisse (CS) assigned a “neutral” rating on March 1, 2015, with a price target of $70. RBC Capital Markets (RY) assigned a “sector perform” rating on March 8, with a price target of $54.