Night settles over solar panals
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Solar energy should get a boost this year with a new administration focused on encouraging renewable energy. But not all solar firm stocks will benefit.
Goldman Sachs cut First Solar (FSLR) to Sell with an $81 price target, seeing a 16% drop from Monday’s closing price after rising 61% over one year.
At the same time, Goldman raised Enphase Energy (ENPH) to Buy with a $232 price target, a 32% gain from Monday’s close after rising 513% over one year.
It’s a tale of two growth stories, the bank said. First Solar’s earnings and revenue have already peaked for this cycle, Goldman analyst Brian Lee said in a note on Monday night. Margins are expected to peak in the first half of this year.
First Solar is expected to report year-end 2020 profit of $3.62 a share, but the estimate for year-end 2021 is $3.44, according to FactSet. Year-end revenue is estimated to be $2.8 billion, which is running slightly below the $3 billion forecast for year-end 2021.
Goldman forecast declines in earnings per share for First Solar starting next year, “further exacerbated by weaker industry pricing moving through next year, as we see the supply-demand dynamic in modules as one of the more challenged areas of the supply chain in the near-to-medium term.”
The analyst’s forecast has First Solar EPS at $4.01 for 2020, falling to $3.59 in 2021.
Shares of the Tempe, Arizona-based panel maker fell 9% to $92.16 on Tuesday, compared to a 0.7% gain in the S&P 500 index.
In contrast, Enphase is in a relatively earlier stage of growth, Lee said. Its market could grow to $14 billion from $2 billion, with annual growth in earnings per share of about 56%.
Shares of Enphase rose 5.3% to $181.48 on Tuesday.
Canadian Solar (CSIQ) carries a Neutral rating at Goldman, which raised its price target on that stock to $48 from $43. The analyst forecasts 2020 earnings per share of $1.27, dropping to 35 cents for 2021.
Shares of Canadian Solar fell 4% to $50.52 on Tuesday.
Goldman still says it is positive on solar stocks, especially given the policy support by the incoming administration of Joe Biden, who has pledged to spend $2 trillion on renewable energy initiatives, including the installation of 500 million panels in five years.
In addition, Congress’ recently approved spending authorization extended a solar investment tax credit.
Global solar installations are forecast to grow 18% this year and an average of 17% annually through 2024, Goldman said. Supply (an additional 120 gigawatts) is seen outpacing new demand (25 gigawatts), a potential risk. One gigawatt can power about 750 homes.
Goldman said solar stocks did better than historical averages last year, especially in the third quarter, because of the quick recovery in the U.S. residential market, optimism around the potential for policy catalysts, and the expectations for faster solar volume growth under a Biden administration, Goldman’s Lee wrote in the note.
“We believe the current set up, combined with momentum in demand, is likely to keep investor sentiment largely positive heading into 2021,” he said.
Write to Liz Moyer at [email protected]
