First Solar and SolarEdge fall. Why solar stocks were downgraded.

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Solar companies are facing rising input costs, Guggenheim analysts said.

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Solar stocks, including First Solar, were down on Wednesday, after asset manager Guggenheim Partners downgraded four companies in the sector, citing rising input costs and the recent relative outperformance of stocks.


First solar

(symbol: FSLR),


SolarEdge

(SEDG),


Array technologies

(ARRY), and


Shoal technologies

(SHLS) were all lowered from buy to neutral by analysts at Guggenheim.

First Solar fell 1.9%, SolarEdge slipped 1.8%, Array Technologies fell 6.4%, and Shoals Technologies fell 2.5% in pre-market trading in the United States. All four companies are manufacturers of panels or systems for solar energy projects.

“We believe the risks to the 2022 revenue and profit outlook are increasing, especially in utilities and large-scale commercial solar, and we do not believe these risks are fully reflected in the consensus estimates,” said wrote on Tuesday Joseph Osha and Hilary Cauley of Guggenheim.

They added that the four titles have increased an average of 24% since the beginning of June, compared to 5% for the


S&P 500

index over the same period.

But all has not been rosy for long-term solar companies. While First Solar has climbed 28% in the past year, SolarEdge has gained just 2%, Array Technologies has fallen 47%, and Shoals Technologies has fallen more than 16% since its IPO at the start of This year.

The main immediate risk for all four actions is rising input costs for steel, aluminum, labor and panels, which impact the plans and timing of solar project developers for the coming year, analysts said.

“Projects that seemed marginal when the contracts were signed now appear to be unsustainable,” the Guggenheim team wrote. He added that while some of the pressures may ease by the end of 2021, “the problem is that we are now in mid-October, which means project decisions are already being made for the next year”.

“Unless input prices drop rapidly, the current environment will soon start to impact the 2022 forecast,” Osha and Cauley said.

Write to Jack Denton at jack.denton@dowjones.com

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