Impressive projections for capacity additions in the near term have set the stage for U.S. solar stocks’ growth. Also, encouraging corporate investments have been boosting the prospects of U.S. solar stocks. However, the lack of policies and possible revocation of section 201 remain concerns for the long-term growth of solar companies. Nevertheless, considering the fact that renewable energy remains the ultimate choice for source of energy among electricity developers, not all hopes are lost for U.S. solar stocks. The forerunners in the U.S. solar industry are
Enphase Energy ( ENPH Quick Quote ENPH - Free Report) , First Solar ( FSLR Quick Quote FSLR - Free Report) and SunPower ( SPWR Quick Quote SPWR - Free Report) . About the Industry
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 46% of all new electricity-generating capacity added in the United States in 2021, per a report by Solar Energy Industries Association (SEIA), reflecting an improvement from 43% in 2020. 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
: With growing demand over the past couple of quarters, the U.S. solar industry has been witnessing a solid upside, thereby overcoming the initial adverse impacts of the COVID-19 pandemic. This is evident from the latest installation trend prevalent in the nation. For instance, as reported by SEIA, the U.S. solar market installed 23.6 gigawatts-direct current (GWdc) of solar capacity in 2021, reflecting a solid 19% increase from 2020. We expect to witness similar robust solar growth in the United States going forward. To this end, the U.S. Energy Information Administration (EIA) expects solar capacity additions in the power sector to total 20 GW for 2022 from 13 GW in 2021. Such impressive projections are indicative of a bright outlook for U.S. solar stocks. Record Solar Installations Boost Prospects Might Hurt: With the cost of solar installation declining more than 70% in the last decade and demand once again on track, it is high time that the U.S. government undertakes advance policies to promote long-lasting growth of the 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 Congress. Moreover, in January 2022, the U.S. Department of Justice appealed to the U.S. Court of International Trade's Section 201 ruling that struck down the Trump administration’s efforts to raise solar tariffs. If the Court of International Trade rules in favor of the Justice Department, it will be detrimental to the solar industry. Raising the solar import tariff will push up the cost of installations, thereby hampering solar stocks’ growth trajectory. Lack of Policy & Adverse Ruling : 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, there is already a gradual recovery in 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 #228, which places it in the bottom 10% 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 recent times. The industry’s earnings estimates for the current fiscal year have gone down by 44.8% since Jan 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 lost 20%, while the Oils-Energy Sector has rallied 34.6% in the same time frame. On the other hand, the Zacks S&P 500 composite has gone down 7.5%.
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 32.42X compared with the S&P 500’s 12.34X and the sector’s 4.13X.
Over the last five years, the industry has traded as high as 48.56X, as low as 20.05X, and at the median of 37.88X, as the charts show below. EV-EBITDA Ratio (TTM)
3 Solar Stocks Worth Watching
SunPower: Based in San Jose, CA, SunPower designs, develops, manufactures, markets and sells high-performance solar electric power technology products, systems and services worldwide for residential, commercial and utility-scale power plant customers. SunPower’s first-quarter 2022 adjusted revenues came in at $336.1 million, which improved 41.3% from the year-ago quarter’s $237.9 million. It had cash and cash equivalents of $142.3 million as of Apr 3, 2022 compared with $127.1 million as of Jan 2, 2022. The Zacks Consensus Estimate for SunPower’s 2022 earnings indicates an improvement of 414.3% from the prior-year reported figure. Its 2022 sales estimate implies an improvement of 20.8% from 2021’s reported figure. The company currently carries a Zacks Rank #2 (Buy). Price & Consensus: SPWR Enphase Energy: Based in Fermont, CA, Enphase designs, develops, manufactures and sells home energy solutions, while microinverters remain this company’s legacy product. The company recently announced that its IQ8 Microinverter system is the first in the world to be certified by UL, a global safety science leader, to UL 1741, 3rd edition including the Supplement SB. The Zacks Consensus Estimate for Enphase’s 2022 earnings indicates an improvement of 41.9% from the prior-year reported figure. ENPH boasts a four-quarter earnings surprise of 23.79% on average. The company currently carries a Zacks Rank #3 (Hold). Price & Consensus: ENPH First Solar: Based in Tempe, AZ, First Solar is a leading global provider of comprehensive PV solar energy solutions and specializes in designing, manufacturing, and selling solar electric power modules. The company recently inked a supply agreement with Scout Clean Energy for delivering 378 megawatt-direct current (MWdc) of its advanced, responsibly-produced thin-film photovoltaic (PV) solar modules. First Solar currently boasts a solid long-term earnings growth rate of 13.2%. FSLR has a four-quarter earnings surprise of 2.49% on average. The company currently carries a Zacks Rank #3. Price & Consensus: FSLR