First Solar (NASDAQ:FSLR) has been one of the strongest stocks in the solar sector over the past year. While SolarCity has fallen by 64% and SunEdison (OTC:SUNEQ) has retreated more than 93% over the past 12 months, First Solar shares have increased by 13%. Several catalysts have powered the company's outperformance, and those catalysts make it a good holding even after the rally.

1. The solar tariffs work in its favor
Because of changes in the solar industry, some of First Solar's glaring weaknesses have become strengths. It wasn't long ago that many investors thought First Solar didn't have much of a chance against Chinese solar companies because Chinese per-watt silicon-related costs were falling faster than First Solar's per-watt cadmium-telluride-related costs. This meant the Chinese solar companies were more price-competitive, and First Solar's capacity utilization underperformed.

Things changed, however, when the U.S. imposed tariffs on Chinese solar imports in 2014. Because of the tariffs, Chinese solar products became more expensive, and First Solar products became more price-competitive. The tariff policy increased First Solar's capacity utilization, which rose from 82% in Q1 2014 to 100% in Q4 2015 and from 81% for the full year of 2014 to 92% for 2015. This is good for investors because, all else being equal, higher capacity utilization translates to greater earnings per share.

2. It has a strong balance sheet
With solar yieldcos such as SunEdison's TerraForm Power paying double-digit yields, some of First Solar's competitors are having a hard time growing because their cost of capital is so high. With a net cash balance of $1.5 billion at the end of 2015, and an expected net cash balance of $1.9 billion to $2.2 billion at the end of 2016, First Solar doesn't have the high-cost-of-capital problem. The company's strong balance sheet allows it to maintain its growth rate and take some of its cash-strapped competitors' business. It also allows First Solar to potentially acquire some of its distressed competitors' assets at attractive valuations. In January, David Einhorn of Greenlight Capital revealed in an SEC filing that he might push SunEdison to sell some of its assets to deleverage. If this occurs, First Solar could use its strong balance sheet to add some SunEdison projects to its pipeline at low prices.

3. It benefits from the ITC tax credit extension
Congress' December extension of the Investment Tax Credit, which provides tax rebates of up to 30% for solar systems on commercial and residential properties for consumers in the United States, makes First Solar's life easier. Before it was extended, many investors feared that the ITC's scheduled step-down to 10% in 2017 would ravage First Solar's demand and make its growth plans much harder. Now that the ITC has been extended to 2019, however, that fear has dissipated. Bloomberg Energy estimates that the ITC extension will add 37 gigawatts of new solar and wind capacity and facilitate as much as $73 billion in new spending in the industry over the next five years. Given that First Solar is a leading U.S. solar company, it stands to receive a big slice of that extra business, and the extension makes the company's 2016 midpoint earnings-per-share guidance of $4.25 more probable.

First Solar is poised to grow 
Because of the ITC tax credit extension and the U.S. solar tariff on Chinese imports, First Solar has substantially better growth and profitability prospects over the next five years. The two policies make First Solar's guidance more attainable, and the company's strong balance sheet provides it an opportunity to buy assets from competitors in accretive transactions. With its stock trading for 16 times 2016 EPS guidance, First Solar looks like a great buy-and-hold that can continue to outperform.

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