To say that the Inflation Reduction Act of 2022 (IRA22) recently enacted by the Biden administration gave the renewable energy industry a boost would be an understatement. It’s no surprise that an injection of about $385 billion in federal dollars over 10 years makes a big difference.
Analyst Brian Lee and his team at Goldman Sachs issued new ratings on four solar energy stocks and changed their price targets on six others. Analysts also raised their forecast for solar power demand through 2030.
Goldman’s previous estimate for solar capacity growth through 2025 has risen from 25% to a new estimate of 30%. Battery storage capacity growth has increased from around 7,000 megawatts in 2022 to nearly 90,000 by 2030. Between 2024 and 2030, battery storage capacity is expected to increase by around 29 % every year.
Goldman raised its sell rating on First Solar Inc. (NASDAQ: FSLR) to buy and raised its price target from $60 to $172. Maxeon Solar Technologies Ltd. (NASDAQ: MAXN) also moved from short to long, and the stock’s $9 price target was raised to $27.
Shoals Technologies Group Inc. (NASDAQ: SHLS) has been downgraded from Buy to Sell, and its price target has been reduced from $23 to $20. Canadian Solar Inc.’s (NASDAQ: CSIQ) neutral rating was downgraded to Sell, and its price target of $43 fell to $38.
First Solar got the go-ahead from Goldman based on “significant tailwinds” from the IRA22 legislation. The company has broad exposure in the United States and is the “most immediate” winner of the manufacturing credits included in the invoice.
Expansion opportunities lifted Maxeon’s rating and prompted the price target increase. Goldman noted that the company is well positioned to expand manufacturing capacity in the United States, a move that will be “transformative” for earnings from 2025.
Shoals was downgraded because its backlog hasn’t grown since late December, raising the risk of downside consensus revenue estimates. This in turn stifled operating leverage and earnings growth.
Canadian Solar is expected to feel “significant” pressure on free cash flow due to the company’s aggressive capacity expansion plans and “moderate” margin outlook. Goldman expects the company to see an erosion in its average selling price starting next year.
Among the 14 companies in Goldman’s solar coverage universe, the average upside is 14%. Here are the six stocks rated for buy, along with their price targets and upside potential based on last Friday’s stock price:
- Solar Edge: price target unchanged at $368; 60% upside potential
- Array Technologies: target raised from $25 to $32; upside potential 58%
- Maxeon: target raised from $9 to $27; upside potential 44%
- First Solar: target raised from $60 to $172; upside potential 36%
- Sunrun: target raised from $40 to $42; upside potential 34%
- Stem: target unchanged; upside potential 27%
- Enphase: Target recently increased from $290 to $328; upside potential 18%
Sunnova is rated neutral and has 9% upside potential, while Fluence Energy is also rated neutral and has 5% upside potential.
Of the four short-listed stocks in Goldman’s coverage, Canadian Solar has a 14% downside, Shoals has a 16% downside, SunPower has a 21% downside risk, and JinkoSolar’s downside risk is 38%. %.
In addition to First Solar’s position as an immediate beneficiary of the IRA22, Goldman also places Array Technologies Inc. (NASDAQ: ARRY), which manufactures and sells solar panel mounting and tracking systems, in the column of immediate beneficiaries. Maxeon, Enphase and Solar Edge are listed in the likely benefit column, while the others are expected not to benefit from the legislation.