First Solar vs. Sunnova: Which Solar Stock is a Better Buy This October?

Major leading economies around the globe are investing heavily in fighting climate change by transitioning towards cleaner energy solutions. This secular megatrend makes solar stocks, such as First Solar (FSLR) and Sunnova (NOVA), top investment choices in October 2024. 

Let’s see which solar stock is a better buy at current prices.

Jeffries Cuts FSLR's Forecast

First Solar (FSLR), valued at $21.9 billion by market cap, provides photovoltaic (PV) solar energy solutions in the U.S. and several other international markets. It designs, manufactures, and sells cadmium telluride solar modules that convert solar energy into electricity. First Solar serves utilities, independent power producers, and commercial and industrial companies. 

FSLR stock has returned close to 250% to shareholders in the last 10 years. However, it trades 33% below all-time highs, and might be attractive to value-seeking investors. 

On Thursday, investment bank Jefferies maintained its “buy” rating on First Solar stock, but reduced its price target to $266 from $271, due to concerns about supply chain disruptions and associated delays. Jefferies expects First Solar to miss product volume estimates in Q3, while earnings might take a hit as it continues to sell excess capacity from India in the U.S. 

According to the brokerage firm, utility-scale solar power growth remains challenging due to labor shortages and supply chain-related headwinds, both of which might weigh on First Solar in the next 12 months. 

While First Solar has to navigate these challenges, the company’s growth story is far from over. For instance, its sales rose by 24.6% year over year to $1.01 billion in Q2 of 2024. Its top-line growth in the last six months is even higher at 33%. 

In Q2, First Solar secured bookings of 0.9 gigawatts with an average selling price of $0.316 per watt, bringing its year-to-date net bookings to 3.6 gigawatts. Its total contracted backlog stands at 75.9 gigawatts, with an aggregate value of $22.3 billion and orders stretching out to 2030. 

Analysts tracking FSLR stock expect adjusted earnings to expand from $7.74 per share in 2023 to $13.50 per share in 2024, and $21.20 per share in 2025. So, priced at less than 10x forward earnings, First Solar stock is really cheap, given its stellar growth forecasts. 

Out of the 33 analysts covering First Solar stock, 24 recommend “strong buy,” one recommends “moderate buy,” and eight maintain a “hold.” 

The average target price for FSLR is $291.83, indicating an upside potential of over 39% from current prices. 

Is Sunnova Energy Stock a Good Buy?

While First Solar has outpaced the broader markets in the past decade, Sunnova Energy (NOVA) has failed to deliver since its IPO in July 2019. NOVA stock has declined by 43% in this period and trades 88% below all-time highs. 

Sunnova, valued at $805 million by market cap, provides residential energy services in the U.S. It offers electricity as well as services such as operations and maintenance, monitoring, repairs and replacements, equipment upgrades, and more. 

Yesterday, Jefferies initiated coverage on Sunnova Energy with a “Buy” rating and a target price of $15. In an investor note, Jeffries explained, “We think NOVA's story is sorely misunderstood and initiate with a Buy with the view that the stock will rerate once the company proves that guidance is indeed actionable.” 

Sunnova significantly increased its cash generation estimates in its Q2 earnings call. The company expects to end 2024 with a cash flow of $100 million, above an earlier cash-neutral estimate. It also raised the cash generation guidance to $350 million in 2025 and $400 million in 2026. 

According to Jefferies, the higher guidance should drive investor optimism, while also providing the company with the resources to meet its upcoming debt obligations. While its peers expect solar shipments and installations to move lower in 2024, Sunnova estimates its capacity to increase by 25% year over year. 

Sunnova remains unprofitable, but its sales are forecast to increase from $721 million in 2023 to $853.6 million in 2024, with estimates calling for $1.07 billion in 2025. 

Out of the 26 analysts covering NOVA stock, 19 recommend “strong buy,” one recommends “moderate buy,” and six recommend “hold.” 

The average target price for the beaten-down stock is $12.88, indicating an upside potential of almost 100% from current prices. 

The Final Takeaway

While Jefferies remains bullish on Sunnova, I would place my bets on First Solar, due to the latter’s steady and growing profit margins, robust backlog, and extremely cheap valuation. 

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.