Jefferies upgrades First Solar as 'only game in town' due to looming import restrictions

Jefferies upgraded First Solar to buy with a price target of $192, citing the likely passage of Senate legislation targeting clean energy companies that rely on foreign suppliers, particularly from China. This legislation is expected to negatively impact the utility-scale solar industry in the short term, but benefit First Solar due to its U.S.-based manufacturing. Conversely, Jefferies downgraded Sunrun to underperform, anticipating limited upside for residential solar due to budget reconciliation and potential headwinds from the Inflation Reduction Act.

Analysis

Jefferies has upgraded First Solar (FSLR) to buy from hold, raising its price target to $192 from $157, which implies a potential upside of nearly 17% from its $164.62 closing price. This upgrade, reflected in a strongly positive per-ticker sentiment of 0.8 for FSLR, is primarily driven by anticipated U.S. Senate legislation aimed at disrupting clean energy supply chains heavily reliant on foreign, particularly Chinese, material assistance. While this legislation is expected to cause a temporary pullback in the broader utility-scale solar industry, First Solar is uniquely positioned to benefit due to its significant U.S.-based manufacturing operations. Jefferies anticipates that these import restrictions could lead to strong average selling prices for First Solar's modules, with analysts led by Julien Dumoulin-Smith noting the Inflation Reduction Act (IRA) is likely to be net positive for the company, or at least better than previously contemplated. Conversely, Jefferies has downgraded Sunrun (RUN) to underperform from hold, slashing its price target to $5 from $6, accompanied by a very negative per-ticker sentiment of -0.7. This downgrade stems from concerns that budget reconciliation processes will negatively impact the residential solar sector, with limited upside expected from IRA adjustments for residential solar, exposing Sunrun to both near-term and long-term headwinds. The overall market sentiment is mixed (0.1), reflecting these divergent outlooks within the solar industry driven by regulatory and trade policy shifts.

Key Decisions for Investors

• Investors should consider the differentiated outlook for solar companies based on their manufacturing geography and exposure to U.S. legislative changes, particularly favoring those like First Solar with significant domestic production capabilities.
• It may be prudent to re-evaluate positions in residential solar companies such as Sunrun, given the anticipated headwinds from budget reconciliation and less favorable IRA interpretations for this segment.
• Closely monitor the final passage and specific provisions of the Senate legislation and IRA adjustments, as these will be critical determinants of near-term performance and long-term viability for companies across the renewable energy sector.