THEeading EV company Tesla Inc. (TSLA) recently grabbed the limelight after the company delivered another stellar quarterly report which has consolidated its status as one of the most disruptive technology companies in the world.
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. dollars of 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 exploits, rather than the quarterly scorecard, that captured Wall Street’s imagination and put the clean energy sector back in the spotlight.
Tesla became the first clean energy company to reach a market valuation of $ 1 trillion after signing a agreement to supply 100,000 electric vehicles to the car rental company Hertz Global by the end of 2022. Tesla has now joined the rarefied air shared by people like Apple Inc. (AAPL), Microsoft Inc. (MSFT) and Amazon Inc. (AMZN) and Alphabet Inc. (GOOGL) who all claim a valuation of T $ 1 +. The development is seen as an indication of the advantage Tesla has in signing agreements before General Motors (GM) and Ford (F) increase their ranges of electric vehicles.
In an interview with CNBC, Wedbush Securities chief executive Dan Ives said Tesla had reached a “watershed moment” by surpassing the $ 1 billion market capitalization mark, as the company remains at the start of a “green tidal wave”.
But Tesla isn’t the only clean energy player to be swept away by the green tidal wave.
After being left out for much of the year, Wall Street is starting to warm up again towards the pivotal solar sector.
“The solar industry will continue to be constrained by poly supply in 2022 as prices remain high. We forecast 25% growth in PV installations if module prices correct to 2020 levels of ~ 1.6 RMB / W, unleashing demand suppressed by high prices in 2021 and boosting sales of inverters and trackers.“Jefferies analysts said.
Jefferies tapped Daqo New Energy (DQ) like his the best selection of solar energy, with DQ shares rising 11% after analysts gave it upside potential at $ 208, a nearly 4-fold jump from current levels.
The names of solar energy have also received a boost over the lingering optimism that an extension of the federal industry investment tax credit will remain in the budget bill currently under consideration by the US Congress.
“The best thing DC can do for solar is pass the tax credit package“, Meghan Nutting, Sunnova Energy (NOVA) executive vice president of government and regulatory affairs, told Bloomberg.
The latest developments have lifted the entire sector, with the TAN ETFs (TAN) up 12.5% in the past two weeks.
However, not everyone is so optimistic about the outlook for the industry. Just a week ago the industry received a major scare after Guggenheim Partners downgraded several sector names, citing rising input costs and the recent relative outperformance of stocks. Decommissioned Guggenheim First solar (FSLR), SolarEdge Technologies (SEDG), Array technologies (ARRY), and Shoal technologies (SHLS) Neutral to Buy, citing “the risks of increasing consensus expectations, particularly in large-scale public and commercial service solar. “
We remain largely optimistic about the solar sector because, like Tesla, it is an industry at the start of the green tidal wave, which means many avenues for growth to come. Here are our top picks.
# 1. SunPower Corp.
- Market capitalization: $ 5.1 billion
- Year-to-date returns: 19.6%
Based in San José, California Sunpower Corp. (SPWR) manufactures crystalline silicon photovoltaic cells and solar panels based on back contact solar cell technology.
SunPower is really an old head in the solar industry and has tried 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 finalized the acquisition of Maxéon (MAXN) in 2019.
A key benefit 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 good turnaround stories, this company might be a good buy.
SunPower recently shifted its focus to residential solar power, announcing its $ 165 million purchase of Blue Raven Solar with the aim of focusing exclusively on the residential solar market.
“Residential activity is bigger, it’s growing faster and it’s more profitable, SunPower CEO Peter Faricy told CNBC following the news of the case.
# 2. First solar
- Market capitalization: $ 11.3 billion
- Cumulative returns: 10.2%
First solar (FSLR) is the largest solar energy manufacturer in America and the third largest in the world.
First Solar manufactures solar panels, photovoltaic power plants and related services, including 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 expected to benefit after the Biden administration banned imports of polysilicon from Xinjiang, China, 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 development is “a positive point for First Solar“given that the company does not use polysilicon and could lead to an acceleration of orders from large-scale developers seeking 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 committed to building 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 of the United States, bolstered by President Biden’s ambitious clean energy goals. CEO Mark Widmar said the three Ohio power plants combined would produce panels that could generate 6 GW of electricity per year by 2025, more than half of all solar panels the company estimates to be produced each year. in the USA.
But here’s another big reason why U.S. solar stocks like First Solar are soaring: solar tax credits.
While the Biden administration has yet to name solar as a manufacturing priority, it supports extending tax credits for solar panel purchases or forcing federal contractors to purchase more solar panels from US suppliers. .
U.S. solar manufacturers fully support the proposed tax credits, saying they could boost domestic production of solar panels while creating tens of thousands of new jobs.
First Solar has backed the tariffs saying they are essential in combating cheap products from overseas. However, industry experts say tax credits are not enough and that large subsidies through tax breaks would be needed on top of tariffs for the industry to really work.
Finally, despite the recent downgrade of Guggenheim, Bank of America still considers First Solar to be better positioned to handle plummeting imports than most of its crystalline silicon counterparts.
# 3. NextEra Energy Partners, LP
- Market capitalization: $ 6.4 billion
- Cumulative returns: 24.9%
NextEra Energy Partners, LP (NEP) is one of the NextEra Energysubsidiaries of (NEE). NextEra Energy Partners has stakes in dozens of wind and solar projects in the United States, as well as natural gas infrastructure assets in Texas. These contract projects use cutting edge technology to generate energy from wind and sun.
Although NEP recently published disappointing third quarter results which has missed both bottom line and bottom line expectations, the company has a portfolio of high quality renewable assets and heavily contracted cash flows with an asset pipeline through sponsor NextEra Energy, making it positions for several years of double-digit distribution growth.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.