The recent rally in some solar stocks has gone a little too far, providing “good exit points” for investors ahead of election day, according to UBS analyst Jon Windham.
“In our view, current valuations in the [alternative energy] sector offers an unattractive risk/reward opportunity given the electoral uncertainty and the likelihood that even a Blue Wave election will result in less than expected political support over the next year,” Windham wrote in a statement. note to customers.
He cut his ratings on four stocks he hedges to sell from neutral. With these downgrades, shares of JinkoSolar Holding Co. JKS,
fell 9.4%, SunPower Corp. SPWR,
slid 6.5%, SolarEdge Technologies Inc. SEDG,
fell 5.2% and Sunrun Inc. RUN,
Despite declines, shares of JinkoSolar still nearly tripled (up 190%) in the past three months and shares of SunPower more than doubled (up 120%), while shares of SolarEdge rose 43% and Sunrun shares rose 30%. In comparison, the S&P 500 SPX index,
gained 4.9% over the same period.
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Windham said the main risk is that current valuations seem to reflect the optimism of the campaign platform, if former Vice President Joe Biden is elected president, more than the reality of policy implementation at the over the next four years.
“It looks like the residential solar actions are not just pricing in a Biden win, but the campaign platform becoming real politics,” Windham wrote. “The mechanics of federal policy implementation remain unclear, and we expect a more muted ‘political reality’ given the high level of local (net federal) control over electricity regulation and subsidies.”
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He reiterated his neutral ratings on Canadian Solar Inc. CSIQ,
Ormat Technologies Inc. ORA,
and Hannon Armstrong Sustainable Infrastructure Capital Inc. HASI,
and retained its buy ratings on TPI Composites Inc. TPIC,
First Solar Inc. FSLR,
and Generac Holdings Inc. GNRC,
Investors can expect the election to create some near-term volatility in solar stocks, Windham said, and therefore prefer “cautious positioning” given high valuation levels.
Despite these near-term valuation concerns, Windham believes domestic energy resilience demand and investor demand for environmental, social and governance (ESG) stocks will be sustainable, leading to higher price targets on stocks. it covers, about 37 on average. %, including on shares he downgraded.