We cannot live without sun; it’s our greatest source of light and heat, and in the long run, it’s the source of all the non-geothermal energy we use. And as more and more people are more environmentally conscious, tapping directly into solar power is becoming more and more popular.
With politics downstream from culture, we shouldn’t be surprised at rumors coming out of Washington in recent days that congressional leaders are tying solar tax credits to a new COVID relief bill. Under current legislation, solar tax credits for residential projects expire in 2022; although no legislation has yet come out of Congress, any credit extension will be good for manufacturers in the solar industry.
A few points come to mind for investors to consider. The anticipation of a Biden administration, with favorable Democratic Party policies towards the alternative energy sector, has boosted actions related to solar energy. Second, now that Biden is officially president-elect, we must remember that his campaign promised, and his party wrote in the platform, definite political preferences on solar power. And finally, if Congress, now free from the worry of a Trump veto, produces a solar energy bill – or associates the solar policy as an endorsement with an unrelated bill, such as COVID relief – this will provide proof of long-term relief on the path for the solar sector.
This is the context to consider when we read the latest from the Roth Capital analyst Philippe Shen, an expert in the alternative energies and clean technologies sector. He recently turned to several companies in the solar sector. They caught his eye for a variety of reasons, and he sees double-digit upside potential for each.
Premier Solar (FSLR)
We’re going to start, and rightly so, with First Solar. This company is a manufacturer of semiconductor thin-film photovoltaic panels for the utility industry. Simply put, the company manufactures the solar collection panels for power plants. First Solar operates worldwide – in sunny areas, of course – and is a leader in advanced photovoltaic technology, including panel maintenance and recycling.
From a macro perspective, FSLR only experienced a slight decline during the koruna-induced economic crisis last winter. The stock recouped the losses it suffered at the time, and more. It is now trading at a net gain of 65% year-to-date.
The company’s sales and profits also performed well. Third-quarter revenue was $ 927 million, a sequential gain of 44%, and EPS, at $ 1.45, was the highest in more than a year. These results were well above expectations.
Shen, in his note on the stock, pointed out two key factors. First, the gains from solar projects: “FSLR generated higher than expected revenue in the third quarter … mainly due to higher than expected project sales of $ 501 million, including sales of three projects in the Japan and two projects in India. And second, Shen noted the strong margins reported by the company: “GMs of 31.6% were above consensus of 23.9% and ROTHe of 24.9%, due to project sales at high margin, especially in Japan, which generated a systems margin of 33% and better. -module margins higher than expected by 30% against an ROTHe of 25.0%. “
These factors prompted Shen to rate FSLR as a buy with a target price of $ 110, denoting upside potential of 19%. (To look at Shen’s background, Click here)
Granted, not everyone is as enthusiastic about FSLR as Shen. Out of 13 analysts surveyed in the past 3 months, 4 are bullish on the title, while 5 remain on the sidelines and 4 are bearish. The 12-month average price target is $ 89.82, which is roughly where the stock is currently trading. (See the analysis of FSLR shares on TipRanks)
Sunnova Energy (NOVA)
We are now moving into the residential sector, where Sunnova Energy develops and markets systems that homeowners can install on their rooftops, allowing them to harness solar energy for home use – or even resell to the grid. Sunnova operates in 18 states, mainly in the sunny regions of the South and Southwest, but also in the Northeast. The company claims a market capitalization of $ 4.1 billion and generated over $ 130 million in annual revenue in calendar year 2019.
Sunnova is on track to beat that annual turnover this year, even including the crown. Total revenue for the first three quarters was over $ 121 million, with third-quarter revenue of $ 50.2 million, up 37% year-on-year.
Shen de Roth likes what he sees at Sunnova, writing about the company: “Management continues to experience strong growth ahead with customer growth> 55% year-over-year in 2021. We see potential for increase in this number coming from new dealers / sub-dealers, services per customer and additional product offerings… The addition of services per customer will allow NOVA to increase the revenues generated for each added customer, and the addition of groups generator gives dealer sales reps another solution they can present when they sit down with a prospect (ie another way to close a sale)… ”
Based on those comments, Shen’s buy rating comes with a target price of $ 51, which implies a 22% hike for the next 12 months.
Overall, Sunnova Energy has a strong buy rating based on analyst consensus, based on 7 buys and a single hold set over the past few weeks. Recent large gains in the stock price have pushed it all the way to the average price target of $ 42.56. (See the analysis of NOVA shares on TipRanks)
Canadian Solar (CSIQ)
For the last stock, we turn to the Great White North. Canada might not be the first place to think about when considering sunny days, but Canadian Solar, based in Guelph, Ont., Has a presence in 150 countries around the world, with more than 16 gigawatts in the project pipeline. Canadian Solar produces photovoltaic systems for large-scale projects and, to date, has delivered over 52 gigawatts of solar modules worldwide.
In the recently released third quarter, CSIQ posted sequential revenue growth of 31%, to $ 914 million, bringing revenue back to pre-crown levels – and well exceeding the forecast estimate of 840 to 890. millions of dollars. Gross margins, at 19.5%, were well above the 16% forecast. The 3.2 gigawatts of solar shipping also exceeded expectations. The company expects growth to continue next year and targets 18-20 gigawatts of deliveries in 2021.
Like the other stocks on this list, CSIQ has seen its solid financial performance translate into solid stock market performance. The stock is up 87% year-to-date, nearly doubling in value, with two weeks of trading remaining in the year.
Philip Shen agrees the company is likely to see further gains. The analyst gives CSIQ shares a buy rating and its $ 50 suggests a potential upside of 21%. (To look at Shen’s background, Click here)
“CSIQ is planning its capacity expansion to accommodate both 182mm and 210mm formats, rather than being limited to either standard. The new formats could lead to higher prices and lower costs over time and support the expected margin expansion in the second half of 2021, ”Shen noted.
In total, there are 7 notices on file for Canadian Solar, or 5 buys and 2 blocks, making analyst consensus a moderate buy. The stock is trading at $ 41.36 and its average price target of $ 45.71 implies a 10.5% rise. (See the analysis of CSIQ 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 equity.
Warning: 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.