Leading electric vehicle company Tesla Inc. (NASDAQ:TSLA) has recently been in the limelight after the company delivered another excellent quarterly report which cemented its status as one of the world’s most disruptive technology companies.
Tesla shone on all key metrics: the company built 237,823 cars (+64%) and delivered 241,391 (+73%), ending the third quarter with $1.3 billion in free cash flow and $16 billion in cash and cash equivalents. Revenue of $13.76 billion marked a 56.9% year-over-year growth, while GAAP net income of $1.6 billion was good for a 389% year-over-year increase.
However, it was the company’s latest trading exploits, rather than the quarterly scorecard, that captured Wall Street’s imagination and brought the clean energy sector back into the limelight.
Tesla has become the first clean energy company to hit a $1 trillion market valuation after signing a agreement to supply 100,000 electric vehicles at the car rental company Hertz Worldwide (OTCPK:HTZZ) by the end of 2022. Tesla has now joined the rarefied air shared by the likes of Apple Inc. (NASDAQ:AAPL), Microsoft Inc. (NASDAQ: MSFT) and Amazon Inc. (NASDAQ: AMZN) and Alphabet Inc. (NASDAQ: GOOG) all of which have a valuation of $1,000,000+. The development is seen as an indication of the advantage Tesla has in signing deals before General Motors (NYSE: GM) and Ford (NYSE:F) are ramping up their electric vehicle lines.
In an interview with CNBC, Wedbush Securities managing director Dan Ives said Tesla had reached a “watershed moment” by surpassing the $1,000,000 market cap mark, as the company remains in the early innings of the market. a “green tidal wave”.
But Tesla is not the only clean energy player to be carried by the green tidal wave.
After being left in the cold for much of the year, Wall Street is starting to heat up once again in the essential solar sector.
“The solar industry will continue to be constrained by poly supply in 2022 as prices remain high. We expect 25% growth in PV installations if module prices correct to 2020 levels of around 1.6 RMB/W, unleashing high price-suppressed demand in 2021 and boosting sales of inverters and trackers“, said analysts at Jefferies.
Jefferies tapped Daqo New Energy (NYSE: DQ) as its selection of high-end solar energywith DQ shares up 11% after analysts gave it upside potential at $208, representing a nearly 4x jump from current levels.
The solar names also received a boost on continued optimism that an extension of the federal industrial investment tax credit will remain in the budget bill making its way through the US Congress.
“The best thing DC can do for solar is pass the tax credit package“, Meghan Nutting, Sunnova Energy (NYSE:NOVA) executive vice president of government and regulatory affairs, told Bloomberg.
The latest developments have energized the whole sector, with the TAN ETFs up 12.5% over the past two weeks.
However, not everyone is so optimistic about the outlook for the sector. Just a week ago, the sector received a big scare after Guggenheim Partners downgraded several industry names, citing rising input costs and the recent relative outperformance of equities. Guggenheim downgraded First Solar (NASDAQ: FSLR), SolarEdge Technologies (NASDAQ: SEDG), Network technologies (NASDAQ:ARRY), and Shoal Technologies (NASDAQ:SHLS) to Neutral de Buy, citing “risks to consensus expectations are growing, especially in utilities and large-scale commercial solar.”
We remain largely bullish on the solar sector because, like Tesla, it’s an industry in the early innings of the green tidal wave, which means a lot of growth to come. Here are our top picks.
#1. SunPower Corp.
Market cap: $5.1 billion
Cumulative returns since the beginning of the year: 19.6%
Based in San Jose, CA Sunpower Corp.(NASDAQ: SPWR) manufactures crystalline silicon photovoltaic cells and solar panels based on back-contact solar cell technology.
SunPower is truly an old leader in the solar industry and has dabbled in many aspects of the business. However, the company’s latest act is to become a more specialized player in solar technology, having sold its microinverter business to Enphase in 2018 and completed the acquisition of Maxeon (NASDAQ: MAXN) in 2019.
One of the main benefits of this strategy has been a reduction in SunPower’s cost of capital and a healthier balance sheet. It’s too early to tell if SunPower’s streamlining efforts will pay off in the long run, but if you like a good turnaround story, this company might be a good buy.
SunPower recently focused on residential solar energy by announcing its $165 million purchase of Blue Raven Solar with the aim of focusing exclusively on the residential solar market.
“The residential sector is bigger, it’s growing faster and it’s more profitable“Sun Power CEO Peter Faricy told CNBC following the news of the agreement.
#2. First Solar
Market cap: $11.3 billion
Cumulative returns since the beginning of the year: 10.2%
First Solar (NASDAQ: FSLR) is the largest manufacturer of solar panels in the United States and the third largest in the world.
First Solar manufactures solar panels, photovoltaic power plants and related services, including the construction, maintenance and recycling of solar products. The Tempe, Arizona-based company uses thin-film semiconductor technology to improve the efficiency and durability of its solar modules.
First Solar is one of the companies set to benefit after the Biden administration bans polysilicon imports from XinjiangChina, a region responsible for supplying about 45% of the world’s solar-grade polysilicon, thanks to the company’s recent commitment to build more solar panels in the United States.
Cowen analyst Jeff Osborne says the development is “a positive point for First Solargiven that the company does not use polysilicon and could result in a ramp-up of orders from large-scale developers looking to avoid traceability issues in the future.
But that’s only part of what makes this solar stock attractive right now.
Last month, First Solar pledged to build a new 3 GW per year panel plant in Ohio at a cost of $680 million. The company says it is looking to “relocate” manufacturing that has moved outside the United States, backed by President Biden’s ambitious clean energy goals. CEO Mark Widmar said the company’s three Ohio factories combined will produce panels that could generate 6 GW of electricity per year by 2025, more than half of all solar panels, according to estimates by company, will be produced annually in the United States.
But here’s another big reason why US solar stocks like First Solar are skyrocketing: solar tax credits.
Although the Biden administration has yet to designate solar power as a manufacturing priority, it supports extending tax credits for solar panel purchases or requiring federal contractors to buy more. of solar panels from American suppliers.
US solar panel makers fully support the proposed tax credits, saying they could boost domestic solar panel production while creating tens of thousands of new jobs.
First Solar supported the tariffs, saying they are essential to combat low-cost goods from overseas. However, industry experts say tax credits are not enough and heavy subsidies via tax breaks would be needed on top of tariffs to really get the industry started.
Finally, despite Guggenheim’s recent downgrade, Bank of America still views First Solar as better positioned to handle falling imports than most of its crystalline silicon peers.
#3. NextEra Energy Partners, LP
Market cap: $6.4 billion
Cumulative returns since the beginning of the year: 24.9%
NextEra Energy Partners, LP (NYSE: NEP) is one of NextEra Energy(NYSE:NEE) subsidiaries. NextEra Energy Partners owns interests in dozens of wind and solar projects in the United States, as well as natural gas infrastructure assets in Texas. These contracted projects use state-of-the-art technology to generate energy from the wind and the sun.
Although NEP has recently published disappointing third quarter results which missed both revenue and earnings expectations, the company has a portfolio of high-quality renewable assets and tightly contracted cash flow with an asset pipeline through sponsor NextEra Energy which positions it for several years of double-digit distribution growth.
By Alex Kimani for Oilprice.com
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