- Solar materials costs have dropped by more than a third since mid-November 2022, and the solar sector is attracting significant capital investment, overtaking investment in oil production for the first time ever in 2023.
- The five highlighted solar stocks include First Solar, Enphase Energy, Array Technologies, JinkoSolar Holdings, and Equitrans Midstream Corp., with explanations of their current status and future potential.
- These stocks are seen as strong potential investments due to a combination of increased capacity, product differentiation, falling production costs, and favorable policy conditions.
Over the past two years, solar manufacturers have been hampered by supply chain disruptions including increasing material costs for polysilicon. Indeed, last year, Rystad Energy estimated that rising equipment and shipping costs could lead to postponement or cancellation of 56% of worldwide utility-scale solar projects that had been planned for 2022.
Luckily, these challenges have been rapidly fading away. Energy prices have fallen back to pre-war levels, driven lower by fears of a global recession and weak oil demand in China due to Covid outbreaks. The same scenario is unraveling in the solar sector, with Bloomberg New Energy Finance (BNEF) reporting that costs of solar materials have dropped by more than a third since mid-November. The prices of wafers have fallen even more sharply, with wafer costs falling as much as 21 percent this week alone.
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Even better, serious money is flowing into the solar sector.
The amount of capital investment flowing into the solar sector is poised to overtake the amount of investment going into oil production for the first time ever in 2023, the International Energy Association has reported.
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According to Fatih Birol, the IEA’s executive director, solar investments are expected to attract over $1 billion a day in 2023 with over $1.7 trillion slated to flow clean energy technologies such as EVs, renewables and storage. Overall, global investment in energy is projected to hit ~$2.8 trillion in the current year.
Speaking to CNBC’s Arabile Gumede on Thursday, Birol said there was a “growing gap between the investment in fossil energy and investment [in] clean energy. Clean energy is moving fast–faster than many people realize. This is clear in the investment trends, where clean technologies are pulling away from fossil fuels. For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy.”
Since the energy crisis hit two years ago, many of the world’s governments have doubled down on renewable energy since they view the sector as an ideal way to not only decarbonize but also achieve energy security. Further, several oil producing hubs including Saudi Arabia and UAE are investing heavily in renewable energy as they try to diversify their economies.
Here are 5 solar stocks for long-term investors.
First Solar
Market Cap: $21.0B
12-Month Returns: 165.8%
First Solar Inc. (NASDAQ:FSLR) is the largest U.S.-based developer of solar panels, with a focus on utility-scale panels. First Solar says it has the ability to manufacture 20+ gigawatts of panel capacity annually, and has spent $1.5 billion cumulatively in R&D since its founding in 1999.
Goldman’s Brian Lee has projected that First Solar will be one of the companies that will benefit the most from the IRA, “FSLR currently has ~3GW U.S. capacity, positing the company as an immediate beneficiary of the IRA manufacturing tax credits. FSLR expects to reach ~7GW nameplate capacity in the US by YE2023 and ~10GW by YE2025. Assuming FSLR qualifies for the $0.17/w credits, we estimate that these credits account for ~60% of FSLR’s ASP, and the 10GW capacity would imply an after-tax benefit of ~$1.4bn/year.”
Last year, First Solar announced that it will build a new solar panel manufacturing facility in the Southeast of the U.S. In November, the company picked Lawrence County in Alabama as the location of its $1.1B factory. The company also plans to spend $185 million upgrading and expanding its existing facilities in Ohio. The announcement came hot on the heels of the passing of the IRA Act, underpinning the impact it’s likely to have on First Solar’s business.
However, not every Wall Street analyst is bullish on FSLR especially over the short-term, with JPMorgan saying the easy money has likely been made while GLJ Research has downgraded the stock from a Buy to a Sell.
Enphase Energy
Market Cap: $25.0B
12-Month Returns: -13.1%
Enphase Energy Inc. (NASDAQ: ENPH) is a leading designer and manufacturer of solar inverters, a critical hardware used in all solar energy installations. Over the past three years, Enphase has recorded steady earnings and revenue growth, with earnings in Q3 2022 clocking in at $634.7 million, a quarterly record and good for an impressive 80% Y/Y growth. Even more remarkable is that Enphase is not only solidly profitable, but also owns one of the biggest profit margins amongst the leading solar names with a gross margin north of 40%. Its nearest rival in this regard is SolarEdge Technologies (NASDAQ: SEDG) with GM of 29%. Interestingly, SolarEdge is one of the solar stocks that have recently received an upgrade: back in December, Cowen reiterated its Outperform rating on SEDG and hiked its price target to $360 from $309, with analyst Jeffrey Osborne writing that SEDG is “well positioned to benefit from secular solar demand driven by policy and higher electricity rates.”
Regarding IRA’s effects on Enphase, analyst Brian Lee notes that it is potentially a “direct and near-term beneficiary of manufacturing credits”.
“Assuming ENPH were to establish US capacity, ENPH would be eligible to capture the full amount of these credits, according to management. In addition, we believe ENPH is well positioned to benefit from the extension of the solar ITC which we believe will be supportive of a more stable demand environment for both residential and commercial solar and storage installations in the US,” according to the analyst.
Array Technologies
Market Cap: $3.4B
12-Month Returns: 69.2%
Albuquerque, New Mexico-based Array Technologies (NASDAQ: ARRY) designs and manufactures solar ground monitoring systems. This company became famous for all the wrong reasons, after the stock crashed spectacularly following its October 2021 IPO. Thankfully, the shares have lately sputtered back to life, with ARRY up 31% over the past 12 months.
Lately, ARRY seems to be getting plenty of love on Wall Street, with Brian Lee predicting it will be “an immediate beneficiary of the demand tailwinds from the IRA”. Lee specifically highlights the extension of the solar ITC at 30% for the next decade, lending a great amount of certainty to the market.
Cantor Fitzgerald rates ARRY overweight:
“We believe Array is a logical long-term partner for engineering, procurement and construction firms and utility-scale solar operators given the company’s proven track record, robust supply chain and differentiated product offering,” Derek Soderberg wrote in an investor note.
Last year, Piper Sandler upgraded ARRY shares to Overweight from Neutral with a $28 price target, good for 53% upside, saying they foresee an improved forward outlook for the renewable energy firm.
JinkoSolar Holdings Co
Market Cap: $2.1B
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12-Month Returns: -37.9%%
JinkoSolar Holdings Co. (NASDAQ:JKS) is the largest solar panel maker in the world. In January, ROTH Capital upgraded the company to Buy from Neutral with a $70 price target (72% implied upside), citing an improving U.S. policy situation and the potential for margin expansion as polysilicon prices continue falling. Polysilicon prices have fallen by more than 40% in two months.
“Post [third-quarter] results, we had already increased our estimates a fair amount. Given the poly price collapse, we see upside potential to margins ahead and plan to update our model following JKS’s upcoming Q4 results,” ROTH said in a note.
Back in December, U.S. Customs and Border Protection released a significant shipment of solar panels for sale in the U.S. market it had seized under the Uyghur Forced Labor Prevention Act (UFLPA). According to ROTH Capital’s managing director Philip Shen, the UFLPA release is a big boon for JinkoSolar as it removes a huge policy risk that JKS faced. Under the UFLPA, the burden of proof demonstrating that goods imported from China’s Xinjiang region were not manufactured with slave labor falls on the buyer. Companies are required to provide a complete list of all employees at their facilities, a detailed distribution network chart and enough evidence proving that laborers were not subjected to forced labor conditions. According to ROTH, as much as 12 GW of solar modules could be barred from entering the U.S. in 2023.
Equitrans Midstream Corp.
Market Cap: $4.2B
12-Month Returns: 10.8%
Equitrans Midstream Corporation (NYSE:ETRN) owns, operates, acquires, and develops midstream assets in the Appalachian Basin. ETRN shares have been on a tear after the U.S. Bureau of Land Management approved right-of-way allowing the Mountain Valley Pipeline to pass through the Jefferson National Forest straddling Virginia and West Virginia.
Morgan Stanley has double upgraded ETRN stock to Overweight from Underweight with a Street-high $14 price target from $7 previously, implying nearly 50% upside.
According to Morgan Stanley analyst Robert Kad, Mountain Valley Pipeline and related impacts for the full year would raise the company’s 2024 EBITDA before deferred revenue, to nearly $1.49B’ The analyst has also noted MVP has fully subscribed its 2B cf/day of capacity under firm commitments with 20-year terms.
By Alex Kimani for Oilprice.com
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