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First Solar: A Guide to Valuation

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Oct. 2 2017, Published 6:12 p.m. ET

Relative valuation

PE (price-to-earnings) and EV-to-EBITDA multiples are commonly used to determine relative valuation. The forward PE multiple considers a company’s equity based on earnings forecasts for the next 12 months. On September 29, 2017, First Solar’s forward PE multiple was reported to be 21.9x. This PE multiple was higher than JA Solar’s (JASO) 9.1x and Canadian Solar’s (CSIQ) 10.4x, and much lower than Jinko Solar’s (JKS) 52.2x.

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Forward EV-to-EBITDA

EV-to-EBITDA multiples are used in capital-intensive industries such as solar power (TAN), coal mining, and automotive. On September 29, 2017, First Solar had a next-12-month forward EV-to-EBITDA multiple of 8.6x, whereas SunPower’s (SPWR) was 35.9x, and Canadian Solar’s was 11.5x.

Analyst recommendations

Of the 18 analysts covering First Solar, three (16.7%) have recommended “buy,” six (33.3%) have recommended “hold,” and nine (50%) have recommended “sell.” Whereas its consensus target price for the next 12 months is $53.98, its stock price was $46.14 on September 28, 2017, denoting an upside potential of 16.1%. In the next and final part of this series, we’ll discuss First Solar’s performance this year.

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