Solar energy stocks rallied on news that President Joe Biden is suspending tariffs on solar panels from Southeast Asian countries.
Shares of energy balance systems developer Shoals Technologies (SHLS) led the charge, gaining as much as 20% in Monday’s trading session.
For investors in the space, the news doesn’t change the valuation outlook for solar stocks, according to Morningstar analyst Brett Castelli. Across the industry, stocks are trading in fairly valued territory or pushing into overvalued ranges.
“Despite the positive news, we consider most solar-related stocks to be fairly valued in our coverage list,” Castelli writes.
Biden’s tariff waiver will last 24 months and is expected to reduce the cost of solar panels. Castelli sees the exemption primarily benefiting companies exposed to large-scale solar projects, which generate 1 megawatt or more of solar power. Solar panels contribute about 30% of the costs of these large-scale projects, according to Castelli.
According to Castelli, the company most exposed to large-scale solar projects is Shoals, which has led to a sharp rise in its share price. Other solar stocks that rose on Monday include Sunrun (CLASSES)Enphase Energy (ENPH)and SolarEdge Technologies (SEDG).
The tariff suspension provides “much-needed short-term certainty for developers,” writes Castelli. “We note that many industry players have delayed projects as they await pricing clarification. Additionally, Biden plans to use the Defense Production Act to provide support for US-made solar panels. We view these actions as aimed at balancing the continued construction of near-term solar projects to support decarbonization goals, while seeking to increase solar manufacturing in the United States over time.
The tariff stop benefit does not extend to US-based solar panel manufacturers, such as First Solar (FSLR)which was trading slightly lower on Monday.
Despite the news, Castelli doesn’t anticipate much change in solar company valuations in his coverage.
“We did not make changes to fair value when the initial rate investigation was announced; thus, we do not plan to make any material revisions with this action. While political issues remain in certain corners of the solar market, such as residential net metering, we expect the focus to be on the macro environment and the potential positive implications of the high energy price environment. energy,” he wrote.
Despite Monday’s rally, only Shoals stock changed direction. Morningstar Rating, to 2 stars from 3 stars.