Concerns about climate change are pushing global leaders to focus more on transitioning their country's economies to be based more on sustainable energy. On the domestic front, the forthcoming Biden-Harris presidential administration aims to spend $2 trillion on clean energy initiatives that will include installing more than 500 million solar panels to America’s energy infrastructure over the next five years. Consequently, major Wall Street analysts are currently bullish on solar stocks.
Solar stocks, as represented by the Invesco Solar ETF (TAN), have dramatically outperformed the broader market this year. While the SPDR S&P 500 ETF Trust (SPY) gained nearly 15% year-to-date, TAN returned more than 200% over the same period. Now, with a keener focus globally on cleaner energy, the alternative energy sector seems well-positioned for multi-decade growth. Solar energy contributed to nearly 4% of total renewable generation in 2016. This percentage is expected to rise to 17% by 2030.
So, the stars now may be nicely aligned to invest in shares of Enphase Energy, Inc. (ENPH), SolarEdge Technologies, Inc. (SEDG) and Canadian Solar Inc. (CSIQ). They have all been upgraded recently by analysts based on their potential for significant revenue and earnings growth.
Enphase Energy, Inc. (ENPH)
ENPH designs, develops, manufactures, and sells home energy solutions for the solar photovoltaic industry in the United States and internationally. The company is the world’s leading supplier of micro inverter-based solar-plus-storage systems, with more than 300 patents. It operates in more than 21 countries. The company has so far shipped more than 30 million inverters.
ENPH was last week upgraded by analysts at Piper Sandler to “Overweight”. The firm believes that ENPH Enphase “has potential for momentum despite the stock's run-up, driven by market share gains in the U.S. residential market and its entry into the small commercial market.” Earlier last week, analysts at JP Morgan (JPM) also hiked ENPH’s price target because they “look for growth in alternative energy to accelerate in 2021 as economic merit-based growth is potentially stimulated by more aggressive government support.”
ENPH’s revenue has climbed 42.2% sequentially to $178.5 million in the third quarter ended September 30, driven primarily by the rise in demand for its microinverter products. The company shipped roughly 478 megawatts DC, or 1,442,743 microinverters during the quarter. As a result, non-GAAP EPS came in at $0.30, rising 76.5% sequentially. The consensus EPS estimate for next year represents a year-over-year growth of 44.5%. The company is now steadily increasing its inventory with the purchase of battery cell packs to support the increased shipments of Encharge storage systems in the coming quarters.
ENPH this week announced the launch of its Enphase Installer Network (EIN) in Australia.. The EIN recognizes "a network of trusted installers that deliver exceptional homeowner experiences using Enphase products and is designed to help Enphase installers grow their business with a range of innovative digital tools and exclusive benefits." Moreover, the stock has been on a roll following an agreement struck with MSpectrum in November to install micro inverters in solar panels at residential and commercial buildings.
How does ENPH stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Overall POWR Rating
You cannot ask for better. The stock is also ranked #1 out of 19 stocks in the Solar industry.
SolarEdge Technologies, Inc. (SEDG)
SEDG designs, develops, and sells direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations worldwide. Its SolarEdge system consists of inverters, power optimizers, communication devices, smart energy management solutions, and a cloud-based monitoring platform.
Analyst at Piper Sandler recently upgraded SEDG to “Overweight.” The firm said “SolarEdge has enjoyed strong revenue and free cash flow growth by branching out via acquisitions in businesses in e-mobility, storage and uninterruptible power supply.” It added that the stock offers "robust potential" to investors and believes the company could grow sales 15% to 25% annually going forward. Additionally, the Piper Sandler upgrade was followed by a rise in price target from JPM. The firm noted that SEDG’s elevated valuations are justified because the U.S. government is preparing to provide "aggressive" support to the renewable energy industry in 2021.
SEDG’s revenues rose 2% sequentially to $338.1 million in the third quarter that ended September30, 2020. This can be attributed to a slight increase in solar business revenues. Moreover, the company’s business outside the United States hit a record high during the quarter. Non-GAAP EPS grew 24.7% sequentially to $1.21. SEDG has already awarded 356 patents, with 318 pending applications. The company’s innovation should drive its future growth. The company also launched a new energy hub inverter with prism technology in June, which can charge smart energy devices up to 200A. Consequently, the consensus EPS estimate for next year represents a year-over-year growth of 44.5%.
In September, SEDG raised $550 million through a senior note offering, which is expected to fund its business operations and expansion plans. It is no surprise that SEDG is rated a “Strong Buy” in our POWR Ratings system. It also has an “A” in Trade Grade, Buy & Hold Grade and Peer Grade. It is ranked #2 in the Solar industry.
Canadian Solar Inc. (CSIQ)
CSIQ is a leading manufacturer of solar photovoltaic modules and provider of solar energy solutions and has a geographically diversified pipeline of utility-scale solar power projects in various stages of development. Over the past 19 years, CSIQ has successfully delivered more than49 GW of premium-quality, solar photovoltaic modules to customers in more than 150 countries.
JPM accorded a “Neutral” rating to CSIQ last week. The firm mentioned in its research report that it “looks for growth in Alternative Energy to accelerate in 2021 as economic merit-based growth is potentially stimulated by more aggressive government support. Although multiples are elevated from historical levels, the industry remains in the early innings of adoption, and there is further upside potential in the stocks as estimates are potentially revised higher.”
CSIQ’s revenue increased 31.4% sequentially to $914.36 million in the third quarter ended September 30, 2020. Total module shipments grew 33% year-over-year to 3.2 GW, driven by strong global demand growth. Non-GAAP EPS came in at $1.32, compared to the year-ago value of $3.10. The company expects manufacturing capacities to nearly double next year to support accelerating growth. In line with the progress, the market expects EPS to rise 17.3% next year.
On November 23rd, CSIQ secured more than 860 MWp in new power purchase agreements in Brazil, in a private auction with a large local utility company and through a corporate PPA agreement with one of the largest financial institutions in Latin America. Moreover, the company announced that two of its projects in Japan were awarded feed-in-tariffs under the 6th FIT Auction. The projects total 22 MWp, and once constructed, they will enter into 20-year power purchase agreements with Tokyo Electric Power Company.
According to the POWR Ratings, CSIQ is a “Buy.” It also has an “A” for Buy & Hold Grade, and a “B” in Trade Grade. It is ranked #6 in the Solar industry.
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About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.
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