Solar companies face rising input costs, analysts at Guggenheim said.
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Solar stocks including First Solar were falling Wednesday, after asset manager Guggenheim Partners downgraded four companies in the sector, citing rising input costs and the shares’ recent relative outperformance.
First Solar (ticker: FSLR), SolarEdge (SEDG), Array Technologies (ARRY), and Shoals Technologies (SHLS) were all downgraded from buy to neutral by analysts at Guggenheim.
First Solar was down 1.9%, SolarEdge slipped 1.8%, Array Technologies fell 6.4%, and Shoals Technologies dropped 2.5% in U.S. premarket trading. All four companies are manufacturers of panels or systems for solar energy projects.
“We believe that risks to 2022 revenue and earnings outlooks are rising, notably in utility and large-scale commercial solar, and we don’t believe those risks are fully reflected in consensus estimates,” Guggenheim’s Joseph Osha and Hilary Cauley wrote Tuesday.
They added that the four stocks have risen by an average of 24% since the beginning of June, compared with 5% for the S&P 500 index over the same period.
But it hasn’t been all rosy for solar companies over the longer term. While First Solar has climbed 28% over the past year, SolarEdge has gained just 2%, Array Technologies has tumbled 47%, and Shoals Technologies has slipped more than 16% since it went public at the beginning of this year.
The immediate, primary risk to the four stocks is higher input costs for steel, aluminum, labor, and panels, which impact solar project developers’ plans and timing for the year ahead, the analysts said.
“Projects that looked marginal when contracts were signed now look unviable,” the team at Guggenheim wrote. It added that, while some of the pressures may ease between now and the end of 2021, “the problem is that it is now mid-October, which means that project decisions are already being made about next year.”
“Unless input prices fall rapidly, soon, the current environment is going to start impacting 2022 forecasts,” Osha and Cauley said.
Write to Jack Denton at [email protected]
