Over the past two years, solar manufacturers have been plagued by supply chain disruptions including rising raw material costs for polysilicon. Indeed, last year, Rystad Energy estimated that increased equipment and transportation costs could lead to postpone or cancel of 56% of utility-scale solar projects worldwide are planned for 2022.
Fortunately, these challenges quickly disappeared. Energy prices have back to pre-war levels, pushed lower by fears of a global recession and weak oil demand in China due to the Covid outbreak. A similar scenario is playing out in the solar sector, with Bloomberg New Energy Finance (BNEF) reporting that the cost of solar materials has more than a third off from mid-November. The price of wafers has fallen even further, with wafer costs down by as much as 21% this week alone.
These developments inspired Wall Street to turn bullish for the sector. Goldman Sachs has predicted that the sector will record a compound annual growth rate (CAGR) of 18% for solar installations through 2026, boosted at least in part by the terms support of the Inflation Reduction Act (IRA) as well as cost reductions. Brian Lee, a five-star Goldman analyst who considers the three solar stocks to be good buy recommendations, says they have at least 50% upside in the timeframe.
Another big reason why the sector is likely to stay hot for years: solar is by far the cheapest source of energy, with new utility-scale solar projects half the cost of coal and natural gas.
Related: What to do to completely decarbonize jet fuel?
Legendary:
CCGT: combined cycle gas turbine
OCGT: open cycle gas turbine
CSP: concentrated solar energy
Here’s a deeper dive into GS’s options.
Market capitalization: $15.5 billion
Return in 12 months: 74.2%
The first solar company (NASDAQ:FSLR) is the largest solar panel developer based in the United States, with a focus on utility-scale panels. First Solar says it is capable of producing more than 20 gigawatts of panel capacity annually and has spent a total of $1.5 billion on R&D since its founding in 1999.
Brian Lee of Goldman has predicted that First Solar will be one of the biggest beneficiaries of the IRA, “FSLR currently has ~3GW capacity in the US, indicating the company is an immediate beneficiary of the IRA. IRA production tax credits. FSLR is expected to reach ~7GW of US capacity by YE2023 and ~10GW by YE2025. Assuming FSLR is eligible for the $0.17/w credits, we estimate that these credits account for ~60% of FSLR’s ASP and that 10GW capacity will result in an after-tax benefit of ~$1.4 billion/ year.”
Last year, First Solar announced that it would be building a new solar panel manufacturing facility in the Southeastern United States. In November, the company chose Lawrence County in Alabama is the location of its $1.1 billion factory. The company also plans to spend $185 million to upgrade and expand existing facilities in Ohio. The announcement came shortly after the IRA Act was passed, reinforcing the impact it could have on First Solar’s business.
However, not every Wall Street analyst is bullish on the FSLR, especially in the short term, with JPMorgan saying there is potential for easy money while GLJ Research downgraded the stock from Buy to Sell.
Market capitalization: $32.7 billion
Return in 12 months: 52.9%
Enphase Energy Co (NASDAQ: ENPH) is a leading designer and manufacturer of solar inverters, a key piece of hardware used in all solar installations. Over the past three years, Enphase has recorded steady revenue and earnings growth, with third-quarter 2022 earnings reaching $634.7 million, a quarterly record and good for an impressive 80 percent growth. % over the same period. What’s even more remarkable is that Enphase is not only consistently profitable, but has one of the biggest margins among the top solar names with a gross margin of up to 40%. Its closest rival in this respect is SolarEdge Technology (NASDAQ: SEDG) with GM at 29%. Interestingly, SolarEdge is one of the recent solar stocks get an upgrade: last month, Cowen reiterated his Outbeat rating on SEDG and raised his price target from $309 to $360, with analyst Jeffrey Osborne writing that SEDG “is well-positioned to benefit from demand. long-term solar demand driven by policy and higher electricity prices.”
As for the IRA’s impact on Enphase, analyst Brian Lee notes that it is likely to be “a direct and short-term beneficiary of the production credits.”
“Assuming ENPH establishes capacity in the United States, ENPH will 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 expansion of the solar ITC which we believe will support a more stable demand environment for both storage and energy installations. residential and commercial solar energy in the United States,” according to the analyst.
Market capitalization: $2.8 billion
Return in 12 months: 31.3%
Albuquerque, based in New Mexico Array technology (NASDAQ: ARRY) designs and manufactures solar ground monitoring systems. This company became famous for all the wrong reasons, after its stock plummeted after its IPO in October 2021. Thankfully, the stock has recently bounced back, with ARRY up 31. % in the last 12 months.
ARRY seems to be getting a lot of love on Wall Street lately, with Brian Lee predicting it will be “an immediate beneficiary of the demand winds from IRAs.” Lee specifically highlighted the expansion of solar ITC at 30% over the next decade, bringing certainty to the market.
Two weeks ago, Cantor Fitzgerald assessed the overweight ARRY:
“We believe Array is a logical long-term partner for engineering, procurement and construction companies as well as utility-scale solar operators based on the company’s proven track record. , strong supply chains and differentiated product offerings,” Derek Soderberg wrote in an investor note.
Two months ago, Piper Sandler upgraded ARRY stock from Neutral to Overweight with a $28 price target, good for a 53% gain, saying it foresees an improved future outlook for the energy company. regenerative.
By Alex Kimani for Oilprice.com
More top readings from Oilprice.com:
