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First Solar (NASDAQ:FSLR) has emerged as one of the biggest gainers in the long-suffering solar sector, jumping nearly 20% on Tuesday after a report that U.S. House GOP lawmakers have come up with a big tax and spending package that includes less extreme credit cuts for the solar and wind industries.
According to J.P. Morgan, the revealed portions of the budget reconciliation bill are bullish for solar, wind and geothermal power providers, noting that production and investment tax credits were truncated from their current definitions, but were left unchanged through 2028, after which they will be gradually phased down until 2032.
J.P. Morgan analyst Mark Strouse says the proposal is a "significant positive" for First Solar, considering that 45x credits will contribute ~60% of the company's estimated earnings over the next two years, adding that limitations on foreign entities are likely to provide a key competitive advantage. First Solar has now gained 43.9% over the past 30 days.
First Solar also benefited from a ratings upgrade by Wolfe Research to Outperform with a $221 price target, good for 16.6% upside. Whereas the House’s proposal shortens the 45X runaway by a year, Wolfe analyst Steve Fleishman thinks investors' fears over Congress killing the Inflation Reduction Act tax credits have been largely allayed. Fleishman says First Solar is set to earn $10B from 45X credits, or ~$92/share, noting that the company's moat in the domestic market remains intact. First Solar is the sole large-scale domestic solar module manufacturer in the United States.
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Shares in solar equipment manufacturers Array Technologies Inc.(NASDAQ:ARRY) and Nextracker (NASDAQ:NXT) have also perked up, jumping 29.2% and 23.2%, respectively. However, shares of Complete Solaria (NASDAQ:SPWR)--formerly SunPower-- and Canadian Solar (NASDAQ:CSIQ) have gone in the opposite direction, extending their losing streak thanks to their ties to international supply chains as well as large exposures to the residential solar segment that has come under more pricing pressure.
Unfortunately, the nuclear and EV industries have not been as lucky. The House committee has proposed a quicker phaseout for nuclear energy production credits and other power sectors, “Nuclear has been bipartisan and was expected to be intact, so the phaseout is one of the most adverse surprises from the draft,” analysts at Jefferies said, they said, noting its a big negative primarily for Constellation Energy Corp. (NASDAQ:CEG).