Robust solar installations backed by booming demand trend for solar witnessed lately have set the stage for U.S. solar stocks’ growth. For the first time, Wood Mackenzie has released a long-term forecast for the U.S. solar market.
However, dearth of ample growth promoting policies might cause the U.S. solar market to miss its CO2 emission target for 2035. Nevertheless, impressive corporate investment in clean energy, including solar, is also a key growth promoter. The forerunners in the U.S. solar industry are
Enphase Energy ( ENPH Quick Quote ENPH - Free Report) , SolarEdge Technologies ( SEDG Quick Quote SEDG - Free Report) and First Solar ( FSLR Quick Quote FSLR - Free Report) . About the Industry
Solar industry can be fundamentally segregated into two sets of companies. While one group is involved in the designing and production of high-efficiency solar modules, panels and cells, the other set is engaged in installation of grids and, in some cases, entire solar power systems.
The industry also includes a handful of companies that manufacture inverters for solar power systems, which convert solar power from modules into electricity required by electric grids.
Buoyed by robust installation trends, solar accounted for 43% of all new electricity-generating capacity added in the United States in 2020, per a report by Solar Energy Industries Association (SEIA). This represents solar’s largest ever share of new generating capacity. It ranks first among all technologies for the second year in a row.
3 Trends Shaping the Future of the Solar Industry : With growing demand over the past few months, the U.S. solar industry has been witnessing an upside overcoming the adverse impacts of the COVID-19 pandemic. This is evident from the latest installation trend prevalent in the nation. For instance, in 2020, the U.S. solar market installed 19.2 gigawatt-direct current (GWdc) of solar capacity, up 43% year over year. Moreover, residential solar deployment was up 11% in 2020 from 2019, reaching a record 3.1 GW. No doubt this has boosted growth prospects of the U.S. solar industry. Evidently, for the first time, Wood Mackenzie has released a long-term forecast as part of the U.S. Solar Market Insight report series. Wood Mackenzie projects total operating solar fleet to more than quadruple by 2030. For the near term, the U.S. Energy Information administration forecasts added utility-scale solar capacity to reach 15.8 GW in 2021, hinting at an annual improvement of 51.9%. Such impressive forecasts are indicative of the bright outlook for U.S. solar stocks. Solid Solar Installations Boost Prospects : With the cost of solar installation having declined more than 70% in the last decade and demand once again on its usual track, it is high time that the U.S. government undertakes advance policies to promote long-lasting growth in the solar industry. To this end, a report by the SEIA forecasts that the industry will fall short of the targets to slash CO2 emissions and reach 100% clean energy by 2035, unless growth promoting policies are enacted and implemented by the Congress. For instance, SEIA recommended that policies to invest in American infrastructure and address climate change must take into account the disproportionate impacts felt by frontline communities, while modifications are required to the solar investment tax credit (SEIA) that includes a proposal for standalone investment tax credit for energy storage at 30% to accelerate storage deployment. Implementation of such policies seems to be the need of the hour for the U.S. solar industry to maintain its current leading position within the renewable market. Lack of Policy Might Hurt CO2 Emission Goals : Rapidly increasing corporate investments in solar energy have been boosting the U.S. solar market. From rooftop systems for local hardware stores to solar parking canopies supporting corporate headquarters to large solar installations powering data centers, solar installations are as diverse and varied as the companies offering them. Notably, data from Renewable Energy Buyers Alliance (REBA) show that corporate purchases of clean power in the United States rose to a record 10.6GW last year. In particular, tech giants are leading the way in terms of corporate investments in clean energy, including solar, with Amazon being the forerunner. Although the pandemic-led crisis situation initially brought solar installation activities to a temporary halt, soaring demand for carbon-free power has once again instilled growth. So, we are already witnessing a gradual recovery in the industry trends, which will accelerate once the COVID-19 risk subsides, thereby attracting increased corporate investments. Corporate Investments to Boost Solar Stocks Zacks Industry Rank Reflects Grim Outlook
The Zacks Solar industry is housed within the broader
Zacks Oils-Energy sector. It currently carries a Zacks Industry Rank #250, which places it in the bottom 1% of more than 250 Zacks industries.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential in recent times. Evidently, the industry’s earnings estimates for the current fiscal year have gone down by 18.1% since Feb 28.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beats S&P 500 & Sector
The Solar Industry has outperformed both the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively surged 69.1% while the Oils-Energy Sector has gained 37.9%. The Zacks S&P 500 composite has increased 49.6% in the same timeframe.
One-Year Price Performance Industry’s Current Valuation
On the basis of trailing 12-month EV/EBITDA, which is commonly used for valuing solar stocks, the industry is currently trading at 64.78X compared with the S&P 500’s 16.46X and the sector’s 6.02X.
Over the last five years, the industry has traded as high as 89.24X, as low as 2.76X, and at the median of 6.89X, as the charts show below.
EV-EBITDA Ratio (TTM) 3 Solar Stocks Worth Watching Enphase Energy: Based in Fermont, CA, Enphase delivers energy management technology for the solar industry, with microinverters being its legacy product. As of Mar 31, 2021, the company shipped more than 34 million microinverters worldwide and approximately 1.5 million of its Enphase residential and commercial systems were deployed in more than 130 countries. Looking ahead, the company is planning to launch its Enphase Storage system in Australia and the portable Ensemble-in-a-Box solution in the fourth quarter of 2021. It also aims to unveil its Enphase Installation Network in Europe and India in the coming days.
The Zacks Consensus Estimate for Enphase’s 2021 earnings indicates annual improvement of 47.5%, while that for 2022 implies a surge of 22.9%. The company delivered an average earnings surprise of 27.63% in the last four quarters. The company currently carries a Zacks Rank #3 (Hold).
SolarEdge Technologies: Based in Israel, SolarEdge Technologies sells direct current (DC) optimized inverter systems for solar energy. As of Mar 31, 2021, the company shipped approximately 69.1 million power optimizers, 2.9 million inverters and approximately 24.0 GW of its DC optimized inverter systems. In 2020, it began construction of “Sella 2”, a 2GWh Li-Ion cell factory in Korea, to meet the growing global demand for Li-Ion cells and batteries, specifically in the energy storage system and e-mobility markets. Sella 2 is expected to begin operation in the first half of 2022.
The Zacks Consensus Estimate for SolarEdge Technologies’ 2021 earnings indicates annual improvement of 18%, while that for 2022 implies a surge of 31.5%. The company delivered an average earnings surprise of 24.45% in the last four quarters. The company currently holds a Zacks Rank #3. You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here First Solar: Based in Tempe, AZ, First Solar specializes in designing, manufacturing, and selling solar electric power modules using a proprietary thin-film semiconductor technology. Given the growing demand for solar modules, the company continues to expand manufacturing capacity. The company started initial production of its Series 6 modules at the second factory in Malaysia in February 2021, in line with its prior expectation to start production in the first quarter of 2021. By the end of the year, First Solar anticipates its Malaysia factories to have a nameplate capacity of 3 GW. Taking this into consideration, management expects its Series 6 production to reach 7.4-7.6 GWDC in 2021.
The Zacks Consensus Estimate for First Solar’s 2021 earnings indicates annual improvement of 19% and has risen 5% over the past 60 days. The company delivered an average earnings surprise of 65.68% in the last four quarters. The company currently holds a Zacks Rank #3.