Benzinga | Nov 5, 2020 12:30PM EST

First Solar's Valuation Exceeds Its Fundamentals, Morgan Stanley Says In Downgrade

Shares of First Solar, Inc. (NASDAQ:FSLR) have risen by 56% year-to-date versus a gain of around 2% for the S&P 500, according to Morgan Stanley.

The First Solar Analyst: Stephen Byrd downgraded First Solar from Equal-Weight to Underweight and raised the price target from $40 to $59.

The First Solar Thesis: The stock has been on an upturn, driven by a pickup in ESG investing, the potential of a Democratic sweep in the election and healthy third-quarter results, Byrd said in a Wednesday downgrade note.

While the global prospects for solar growth are bright, the valuation of First Solar's stock does not reflect the "longer-term risk of margin erosion," the analyst said.

The company's "primary competitors, large module manufacturers based in China, will continue to aggressively cut manufacturing costs, and offer lower prices for its modules, such that First Solar's module margins will come under pressure," he said.

"We expect to see indications of this in the next few quarters, which will catalyze the stock to re-rate."

FSLR Price Action: Shares of First Solar were up 9.04% at $86.99 at last check Thursday.