Renewable energy stocks have been rising for more than a year as a shift to renewables from fossil fuels accelerates.
The inauguration of President Joe Biden has been another important factor because the new administration has ambitious goals to combat climate change.
Investors, however, have already accounted for these developments, and a recent rally in renewable energy companies could mean that the stocks will struggle to see similar gains in the near future.
On Wednesday, Credit Suisse factored the Biden bump into their price targets for several stocks. Positive news came out even before Biden took office: the stimulus package passed by Congress in December included two-year extensions of key tax credits for wind and solar projects.
Analyst Michael Weinstein thinks that the tax credits—which offer buyers of solar panels, fuel cell projects, and small wind turbines a credit worth 26% of the cost of the systems—could be extended for another three years. He puts a 75% chance on that happening. He also says there is a 25% chance that Biden will be able to pass policies adding 8 million new rooftop solar arrays by 2025.
That doesn’t mean that all the renewable stocks are buys. Some have advanced so much in the past year that Credit Suisse thinks they may have gotten ahead of themselves. Enphase Energy (ticker: ENPH), which makes solar equipment called inverters, has sextupled in the past year.
Credit Suisse analyst Maheep Mandloi raised his price target on Enphase to $150, but the stock has already passed that level, and was recently trading at $199. Mandloi rates Enphase at Neutral.
Another stock favored by renewable energy investors could also benefit from Biden’s policies, according to Credit Suisse. NextEra Energy (NEE), the most renewables-focused utility in the U.S., could rise to $86, Weinstein wrote. He rates the stock at Outperform. That said, NextEra has also risen so much in recent weeks that it has nearly reached that target price already. It closed on Wednesday at $84.05.
A big solar player may also have run up too much in recent weeks. Weinstein downgraded Sunrun (RUN), the country’s largest developer and installer of solar projects, to Neutral from Outperform. He raised his price target on the stock to $79, but that is actually below the current price of $81.90.
“The stock current implies a 100% probability of a tax credit extension and a 50% probability of 8 million solar rooftops by 2025,” Weinstein wrote.
Sunrun fell 4.3% on Wednesday.
Write to Avi Salzman at [email protected]
