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3 Solar Industry Stocks Worth Watching Despite Policy Woes
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Increasing corporate investments in solar power, with tech giants leading the way, have set the stage for U.S. solar stocks’ growth. The robust solar installations trend observed in recent times coupled with strong forecast data has been boosting the prospects of U.S. solar stocks. However, a lack of policies of the U.S. government might hamper the long-term growth of solar companies. Nevertheless, soaring demand for carbon-free power has once again instilled growth in the solar space, thereby overcoming the short-lived pandemic-led demand crunch. The forerunners in the U.S. solar industry are SolarEdge Technologies (SEDG - Free Report) , Sunrun (RUN - Free Report) and ReneSola Ltd (SOL - Free Report) .
About the Industry
The Zacks 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 the 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 ranked first among all technologies for the second year in a row.
3 Trends Shaping the Future of the Solar Industry
Solid Solar Installations Boost Prospects: 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, as stated by SEIA, in first-quarter 2021, the U.S. solar market installed just over 5 gigawatt-direct current (GWdc) of solar capacity, reflecting a solid 46% improvement year over year. It also represented the largest first quarter on record for solar installation in the nation. We expect to witness similar robust solar growth in the United States going forward. The U.S. Energy Information administration forecasts added utility-scale solar capacity to reach 15.9 GW in 2021, hinting at an annual improvement of 58%. Such impressive forecasts are indicative of the bright outlook for U.S. solar giants such as Enphase Energy (ENPH - Free Report) .
Lack of Policy Might Hurt CO2 Emission Goals: 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. 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 a 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.
Corporate Investments to Boost Solar Stocks: 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 10.6 GW 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 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.
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 #226, which places it in the bottom 11% of more than 250 Zacks industries.
The group’s 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 the recent times. The industry’s earnings estimates for the current fiscal year have gone down by 24.6% since May 31.
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 Lags S&P 500 & Sector
The Solar Industry has underperformed both the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively risen 18.9% while the Oils-Energy Sector has gained 35.4%. The Zacks S&P 500 composite has increased 35% in the same time frame.
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 40.42X compared with the S&P 500’s 16.21X and the sector’s 4.92X.
Over the last five years, the industry has traded as high as 88.30X, as low as 25.96X, and at the median of 41.12X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Solar Stocks Worth Watching
ReneSola: Based in Stamford, CT, ReneSola is a solar project developer and operator, with robust pipeline projects worldwide. As of Jun 30, 2021, ReneSola completed 850 megawatts (MW) of projects and had 170 MW of projects in operation. The company has signed a strategic partnership agreement with Emeren, a London, United Kingdom-based project developer specializing in the development of renewable energy power plants in Europe, and other international markets. Per the terms, ReneSola will co-develop ground-mounted solar projects in Italy, with a pipeline of several transactions scheduled for 2021.
The Zacks Consensus Estimate for ReneSola’s 2021 earnings indicates an annual improvement of 200% while that for 2022 implies an increase of 19.75%. The company delivered an average earnings surprise of 242.50% in the last four quarters. The company currently carries a Zacks Rank #2 (Buy).
SolarEdge Technologies: Based in Israel, SolarEdge Technologies sells direct current (DC) optimized inverter systems for solar energy. As of Jun 30, 2021, the company shipped approximately 74.1 million power optimizers, 3.1 million inverters, and approximately 25.7 GW of its DC optimized inverter systems. It is gradually ramping production and plans to ship 25-30 megawatt-hour (MWhr) of batteries in the third quarter of 2021.
The Zacks Consensus Estimate for SolarEdge Technologies’ 2021 earnings indicates an annual improvement of 24.57% while that for 2022 implies a surge of 34.7%. The company delivered an average earnings surprise of 17.88% in the last four quarters. The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sunrun: Based in San Francisco, CA, Sunrun is a leading home solar panel and battery storage company. In May, Sunrun signed a partnership with Ford to be the preferred installer for Ford Intelligent Backup Power, Ford’s Charge Station, and home integration system, debuting with the all-electric F-150 Lightning. Sunrun co-developed the bi-directional inverter technology with Ford that can dispatch power back to the home. Sunrun has been selected to distribute and install this technology.
The Zacks Consensus Estimate for 2021 indicates an annual improvement of 80.95%. The company delivered an average earnings surprise of 61.91% in the last four quarters. The company currently carries a Zacks Rank #3.
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3 Solar Industry Stocks Worth Watching Despite Policy Woes
Increasing corporate investments in solar power, with tech giants leading the way, have set the stage for U.S. solar stocks’ growth. The robust solar installations trend observed in recent times coupled with strong forecast data has been boosting the prospects of U.S. solar stocks. However, a lack of policies of the U.S. government might hamper the long-term growth of solar companies. Nevertheless, soaring demand for carbon-free power has once again instilled growth in the solar space, thereby overcoming the short-lived pandemic-led demand crunch. The forerunners in the U.S. solar industry are SolarEdge Technologies (SEDG - Free Report) , Sunrun (RUN - Free Report) and ReneSola Ltd (SOL - Free Report) .
About the Industry
The Zacks 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 the 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 ranked first among all technologies for the second year in a row.
3 Trends Shaping the Future of the Solar Industry
Solid Solar Installations Boost Prospects: 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, as stated by SEIA, in first-quarter 2021, the U.S. solar market installed just over 5 gigawatt-direct current (GWdc) of solar capacity, reflecting a solid 46% improvement year over year. It also represented the largest first quarter on record for solar installation in the nation. We expect to witness similar robust solar growth in the United States going forward. The U.S. Energy Information administration forecasts added utility-scale solar capacity to reach 15.9 GW in 2021, hinting at an annual improvement of 58%. Such impressive forecasts are indicative of the bright outlook for U.S. solar giants such as Enphase Energy (ENPH - Free Report) .
Lack of Policy Might Hurt CO2 Emission Goals: 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. 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 a 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.
Corporate Investments to Boost Solar Stocks: 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 10.6 GW 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 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.
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 #226, which places it in the bottom 11% of more than 250 Zacks industries.
The group’s 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 the recent times. The industry’s earnings estimates for the current fiscal year have gone down by 24.6% since May 31.
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 Lags S&P 500 & Sector
The Solar Industry has underperformed both the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively risen 18.9% while the Oils-Energy Sector has gained 35.4%. The Zacks S&P 500 composite has increased 35% in the same time frame.
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 40.42X compared with the S&P 500’s 16.21X and the sector’s 4.92X.
Over the last five years, the industry has traded as high as 88.30X, as low as 25.96X, and at the median of 41.12X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Solar Stocks Worth Watching
ReneSola: Based in Stamford, CT, ReneSola is a solar project developer and operator, with robust pipeline projects worldwide. As of Jun 30, 2021, ReneSola completed 850 megawatts (MW) of projects and had 170 MW of projects in operation. The company has signed a strategic partnership agreement with Emeren, a London, United Kingdom-based project developer specializing in the development of renewable energy power plants in Europe, and other international markets. Per the terms, ReneSola will co-develop ground-mounted solar projects in Italy, with a pipeline of several transactions scheduled for 2021.
The Zacks Consensus Estimate for ReneSola’s 2021 earnings indicates an annual improvement of 200% while that for 2022 implies an increase of 19.75%. The company delivered an average earnings surprise of 242.50% in the last four quarters. The company currently carries a Zacks Rank #2 (Buy).
SolarEdge Technologies: Based in Israel, SolarEdge Technologies sells direct current (DC) optimized inverter systems for solar energy. As of Jun 30, 2021, the company shipped approximately 74.1 million power optimizers, 3.1 million inverters, and approximately 25.7 GW of its DC optimized inverter systems. It is gradually ramping production and plans to ship 25-30 megawatt-hour (MWhr) of batteries in the third quarter of 2021.
The Zacks Consensus Estimate for SolarEdge Technologies’ 2021 earnings indicates an annual improvement of 24.57% while that for 2022 implies a surge of 34.7%. The company delivered an average earnings surprise of 17.88% in the last four quarters. The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sunrun: Based in San Francisco, CA, Sunrun is a leading home solar panel and battery storage company. In May, Sunrun signed a partnership with Ford to be the preferred installer for Ford Intelligent Backup Power, Ford’s Charge Station, and home integration system, debuting with the all-electric F-150 Lightning. Sunrun co-developed the bi-directional inverter technology with Ford that can dispatch power back to the home. Sunrun has been selected to distribute and install this technology.
The Zacks Consensus Estimate for 2021 indicates an annual improvement of 80.95%. The company delivered an average earnings surprise of 61.91% in the last four quarters. The company currently carries a Zacks Rank #3.