Is First Solar Priced for Long-Term Success Amid Policy Tailwinds and Rising Margins?

In the rapidly evolving renewable energy sector, First Solar (FSLR) has emerged as a standout performer, leveraging technological innovation and favorable policy shifts to bolster its financials. As the company navigates a post-2025 landscape marked by the One Big Beautiful Bill Act (OBBB) and a surge in domestic manufacturing incentives, investors are scrutinizing whether its valuation reflects sustainable long-term growth. This analysis examines First Solar's valuation metrics, margin durability, and policy-driven leverage to determine if it is priced for success.

Valuation Metrics: A Discount to Growth Potential

First Solar's recent financial performance suggests a compelling valuation. For Q3 2025, the company reported a price-to-earnings (P/E) ratio of 19.98, a premium to its historical averages but still below the broader solar sector's average of 25x, according to Q3 earnings. More critically, its forward-looking PEG ratio stands at 0.46, calculated using its projected 2025 earnings per share (EPS) of $14–$15 and a 23.68% annual earnings growth forecast, according to FY 2025 guidance. A PEG ratio below 1 typically indicates undervaluation relative to growth expectations, suggesting First Solar's stock may be attractively priced for long-term investors.

While the enterprise value-to-EBITDA (EV/EBITDA) ratio remains undisclosed in recent reports, indirect calculations offer insight. With a market cap of $25.05 billion and a net cash balance of $1.5 billion, First Solar's enterprise value approximates $23.55 billion. Assuming EBITDA margins of 43% (as reported in Q3 2025) and 2025 revenue guidance of $4.95–$5.20 billion, EBITDA would range between $2.13 billion and $2.24 billion. This yields an estimated EV/EBITDA ratio of 10.8–11.2x, well below the solar industry's average of 15–18x, per the company's third-quarter results. Such metrics imply First Solar is trading at a discount to its peers, even as it scales production and secures a $16.4 billion contracted sales backlog, per a contracted sales backlog disclosure.

Margin Durability: Profitability Amid Production Challenges

First Solar's margin resilience is a cornerstone of its appeal. For 2025, the company projects gross margins of $2.10–$2.20 billion, operating income of $1.56–$1.68 billion, and a net margin of 28.95%, according to Seeking Alpha. These figures reflect robust operational efficiency, driven by high-margin U.S. manufacturing and a strategic shift toward utility-scale projects. However, challenges persist: RBC Capital notes that supply chain disruptions and the relocation of a 3.7 GW production line to the U.S. will temporarily reduce output in 2026, as discussed in MarketBeat's coverage. Despite these headwinds, First Solar's Altman Z-Score of 4.99 and $1.5 billion in net cash provide a buffer against margin compression, per Seeking Alpha.

The company's ability to access 45X tax credits under the OBBB Act further strengthens its margins. These credits, available for solar panels with at least 65% domestic content, align with First Solar's U.S.-centric manufacturing strategy. The firm's 2025 guidance includes $1.56–$1.59 billion in 45X-related tax benefits, directly boosting gross and operating income, as reported in the third-quarter results. This policy-driven tailwind underscores the durability of its margins, even as global solar investment declines due to policy uncertainty in other markets, a trend noted by MarketBeat.

Policy Leverage: Navigating the OBBB Act's Complexities

The OBBB Act's provisions present both opportunities and risks for First Solar. On the positive side, the 45X tax credit's domestic content requirements incentivize the company's expansion of U.S. facilities in Alabama and Louisiana, which are expected to enhance production capacity, according to Q2 2025 slides. Additionally, the Act's deadline for wind and solar projects to begin construction by July 4, 2026, creates urgency for developers to align with First Solar's high-quality modules, according to Sidley's analysis.

However, the Act's Foreign Entities of Concern (FEOC) restrictions introduce complexity. To qualify for 45X credits, First Solar must ensure its supply chain is free from components sourced from adversarial nations like China or Russia, as explained in a Tax Foundation analysis. While the company's vertically integrated manufacturing model minimizes this risk, compliance with FEOC rules will require ongoing scrutiny. The termination of the 25D residential tax credit also limits growth in the residential solar segment, though First Solar's focus on utility-scale projects mitigates this impact, per an SEIA overview.

Conclusion: A Compelling Case for Long-Term Investors

First Solar's valuation appears justified by its strong margins, policy tailwinds, and growth leverage. A PEG ratio of 0.46 and an estimated EV/EBITDA of 10.8–11.2x position the stock as a discount to its growth potential, while its 28.95% net margin and $16.4 billion backlog ensure durability. The OBBB Act's 45X tax credits and domestic manufacturing incentives further amplify its competitive advantages, though FEOC compliance and production delays pose manageable risks.

For investors seeking exposure to the clean energy transition, First Solar offers a rare combination of near-term profitability and long-term policy-driven growth. As the U.S. energy landscape shifts toward domestic production, the company's strategic alignment with these trends suggests it is indeed priced for success.