The recent uptrend in First Solar (FSLR) stock might have soothed investors a bit. However, the worst may not be over for the stock. It showed a “death cross” pattern last week that indicates a bearish signal for the stock. Notably, it has rallied approximately 30% so far this year.
First Solar stock’s steep fall
First Solar stock was notably weak since late September. The weakness was further aggravated by weaker-than-expected Q3 earnings last month. The stock has fallen more than 20% since its 52-week high of approximately $70 in August.
First Solar stock is currently trading at $54.96, almost 2% and 7% below its 50-day and 200-day simple moving average levels, respectively. Its 50-day level crossing below its 200-day level suggests more weakness in the stock. Technical analysts call this event a “death cross.” So, FSLR’s 50-day level close to $56.6 might act as a crucial resistance level for the stock in the short term. If the stock breaks above this level, it could trade strong. The 200-day level close to $59.25 will also likely act as a resistance for the stock.
The recent strength in FSLR has pushed it toward the overbought zone. Its RSI (relative strength index) is close to 65, indicating that the stock might reverse direction soon.
First Solar stock also looks attractive from the valuation perspective at the moment. It’s currently trading at 14 times its estimated EPS of 2020. This level looks like a discount compared to its historical average, which is approximately 20x. Also, based on analysts’ estimates, First Solar’s EPS are expected to increase 55% year-over-year in 2020 and 11% in 2021. So its valuation looks pretty appealing, given the handsome growth potential for the next few years. Solar stocks’ mean average forward PE currently comes in around 18x.
Peer solar panel maker SunPower (SPWR) stock is trading at 37 times its 2020 estimated EPS, and the stock has rallied more than 45% so far this year. It’s lost a large portion of its gains recently and is currently trading at a seven-month low. Last week, SunPower announced its plans to spin off its global panel manufacturing business. SPWR stock fell even further after its share dilution plans came out.
Top solar stocks: Q3 earnings
In the third quarter of 2019, First Solar reported earnings of $0.29 per share, a fall of more than 46% compared to Q3 2018. It reported revenues of $547 million, which were a decline of almost 20% against Q3 2018. The company notably missed its earnings as well as its revenue estimates during the third quarter. However, FSLR increased its operating earnings guidance for Q4 2019.
SunPower turned profitable in Q3 and reported earnings of $0.07 per share. It had reported losses for the last several quarters. For Q4 2019, SunPower is estimated to report $0.24 per share.
FSLR versus SPWR: Analysts’ price targets
Wall Street analysts have given First Solar stock a mean target price of $71 against its current market price of $55. This target price indicates a potential upside of 31% for the next 12 months.
Of the 16 analysts who cover FSLR, eight recommended a “buy,” three recommended a “strong buy,” and five recommended a “hold.” None of the analysts rated the stock as a “sell” so far this year.
SunPower stock offers an estimated upside of more than 26%, based on analysts’ mean target price of $9.30. It’s currently trading at $7.40. The stock has fallen more than 55% since its 52-week high of $16 in August.
Among the 12 analysts currently tracking SPWR, three recommended a “buy,” five recommended a “hold,” and four recommended a “sell.”
Solar inverter maker Enphase Energy (ENPH) is one of the top gainers in the industry, with a more-than-300% gain year-to-date. The stock seemed to have calmed a bit after a steep fall. Read more in Is Enphase Energy Stock Readying for Another Big Move?