Energy prices have risen, largely as part of an inflationary trend that has accelerated in recent months. Oil and gas prices are rising significantly; natural gas has more than doubled since the spring, while crude oil prices are about a third. The immediate result is higher prices at the pump – gasoline has increased by more than $ 1 per gallon on average. But we’re heading into winter, and higher fuel prices promise higher heating costs just as the cold weather begins.
Given the administration’s current policies – Biden has pledged to cut production and use of fossil fuels – these price hikes are likely to stay with us for some time. And for investors, it opens up an unexpected avenue of opportunity. With rising home heating prices looming on the horizon, manufacturers of residential solar installations are seeing signs of increased demand – and with it, rising stock prices.
For solar energy companies, the rise in stock values came just in time. These stocks were hit hard by declining consumer demand during the COVID crisis, and during the first half of this year saw a sharp drop in stock prices. Over the past month, however, increased investor interest has driven up their stock prices. While residential solar installations do not replace the full economic role of fossil fuels for electricity and heating, they allow individual homeowners to make a long-term investment that can mitigate the impact of fuel inflation.
So it’s an interesting time to look at residential solar power. BMO analyst Ameet Thakkar, an expert in the energy sector, has selected the stocks he plans to gain in the next 12 months. We’ve scoured all three in the TipRanks database to see what other Wall Street analysts have to say about them. Let’s take a closer look.
Sunnova Energy (NOVA)
The first is Sunnova, a leader in the US market for residential solar solutions and energy storage. The company aims to provide its customers with clean, affordable and reliable energy to create energy independent homes. Sunnova debuted in 2012 and now has more than 162,000 customers in 33 states.
Sunnova shares peaked in January this year and have since come under heavy pressure. The stock is down 34% from that high point – but in recent weeks it has rebounded 16%. These recent gains are likely related to some of the factors mentioned above, but they are also correlated with the strong revenue performance in the second quarter. Second-quarter revenue of $ 66.6 million was up 55% from last year’s quarter, and even more impressive 61% sequentially.
The increase in revenues is due to strong organic growth. The company added 12,700 new customers in the second quarter to reach a total customer base of 162,600. This compares favorably to the 8,500 customers added in the first quarter. Sunnova also declared $ 629 in liquid assets at the end of 1H21. On the negative side of the ledger, Sunnova saw its profits decline; the company generally records a net loss, but it increased in the second quarter to 57 cents per share, from 31 cents in the first quarter.
BMO’s Thakkar writes of Sunnova: “NOVA provides exposure to the growing US residential solar market that is driven by government policy goals, EV adoption and energy storage demand. We believe the company’s expanding dealer network should generate substantial operating leverage from a growing pool of cash flow from contract customers. The typical period of the NOVA solar agreement of 20 to 25 years, with the majority of costs incurred in the first year, results in greater profitability and better visibility of cash flows in subsequent periods.
In line with these optimistic comments, Thakkar gives NOVA an outperformance (i.e. buy) rating and a price target of $ 50 which implies a 31% hike for the coming year. (To see Thakkar’s record, Click here
The consensus strong buy rating on NOVA shares is based on 10 recent valuations, including 9 to buy and only 1 hold. The stock is selling for $ 38.10 and its average target of $ 51.80 is even more bullish than Thakkar’s, suggesting year-over-year upside potential of 35%. (See the analysis of NOVA shares on TipRanks)
NOVA has a rare bullish outlook depending on the street. TipRanks reveals that in the past three months, NOVA has received 9 buy ratings and only 1 maintain rating, giving it a strong buy analyst consensus. Meanwhile, analysts’ average price target of $ 51.80 translates to a potential upside of 36% from the current share price. (See the analysis of NOVA shares on TipRanks)
Enphase Energy (ENPH)
The next stock on our list is ENPH, Enphase Energy. It is a manufacturer of solar microinverters, a key component of solar powered photovoltaic systems. Microinverters convert direct current (DC) electrical energy from the solar panel into alternating current (AC) energy compatible with power transmission grids. Enphase is a market leader in microinverter production, a position it claimed by being the first company to bring the component to market on a large scale. The company achieved sales of $ 774.4 million in fiscal 2020.
Since its inception in 2006, the company has sold and installed over 36 million microinverters in over 1.5 million residential and commercial electrical systems. The company has seen its products evolve over 8 generations and holds more than 300 patents on inverters and associated technology. In recent weeks, the company announced the expansion of its operations in Italy and Brazil.
Enphase will release its third quarter results later this month, but a brief look at the second quarter numbers may be enlightening. Sales are up for the fourth consecutive quarter. Revenue reached $ 316 million, and the company shipped more than 2.36 million microinverters. Profit was 28 cents per share, up dramatically from the loss of 38 cents in the previous year quarter. The recent peak in earnings came in 4Q20, at 50 cents per share, and the share price peaked above $ 200 in February. The ENPH is down 20% from that level – and up 19% so far in October.
BMO’s Ameet Thakkar sees many reasons for optimism in Enphase, noting, “We are bullish on the distributed solar generation sub-sector within the broader energy transition universe due to several emerging megatrends… The investment case for ENPH is straightforward and compelling as we see significant growth benefits (30% CAGR 2020-2025) driven by increasing solar adoption rates, increasing revenue per client site (battery + EV), entering small commercial markets and accelerating the international growth of industry-leading inverter technology… ”
These comments support Thakkar’s outperformance (i.e. buy) rating, and its price target is for the stock to return to the $ 200 level in the coming year, a potential gain. by 12%.
Overall, Enphase received 9 recent reviews, 8 to buy versus 1 to keep, for a strong buy consensus rating on the stock. The stock price of $ 178.24 and the average target of $ 200.75 offers upside potential of 12% for the next 12 months. (See the analysis of ENPH shares on TipRanks)
SolarEdge Technologies (SEDG)
Last on our list, SolarEdge Technologies, is a direct competitor of Enphase. SolarEdge produces inverter systems, as well as power optimizers and monitoring systems for solar photovoltaic panels. The company is based in Israel and has offices in the United States, Germany, Italy and Japan.
SolarEdge markets its products to the residential and commercial sectors and currently has 2.15 million monitored systems installed worldwide. SolarEdge has customers in more than 130 countries, to which it has shipped, over the years, more than 25.7 gigawatts of solar power generation.
In its most recent quarterly report, for 2Q21, SolarEdge reported total revenue of over $ 480 million; the company’s solar segment brought in $ 431.5 million of that total. These were record numbers for the company, and total revenue grew 45% year over year. EPS, at 82 cents, was up 17 cents from the previous year quarter. The company saw its cash flow increase from $ 24.1 million in the first quarter to $ 38.7 million in the second quarter and it said it had $ 509.3 million in cash as of June 30 of this year.
SolarEdge stock peaked in January of this year and has shown the same trend as other stocks on this list – a significant decline in the first half of the year, with gains more recently. The stock is down 16% from its peak, but up 17% so far in October.
BMO’s Ameet Thakkar likes what he sees here, writing: “SEDG offers investors a compelling way to play on several energy transition themes: growing solar capacity across all customer categories (residential, C&I and scale of services). utilities), ESS / UPS electricity supply, and an emerging electric vehicle supply activity, all of these business sectors having a strong international presence. SEDG’s core inverter product is becoming an increasingly important part of a rapidly growing solar market.
Thakkar’s rating on the stock is Outperform (i.e. buy), and his price target of $ 357 implies a 17% hike.
Overall, SolarEdge has a moderate buy rating from analyst consensus, based on 17 reviews that break down into 13 buy, 2 suspend, and 2 sell. The average stock price target of $ 322.20 indicates a modest upside margin of 5% from the current price of $ 305.13. (See the analysis of SEDG shares on TipRanks)
To find great ideas for solar stocks traded at attractive valuations, visit TipRanks Best Stocks to Buy, a recently launched tool that brings together all the information about TipRanks stocks.
Disclaimer: The opinions expressed in this article are solely those of the analysts presented. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.