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3 Solar Stocks to Watch Amid Growing Residential Installations
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Increased solar installations in the U.S. residential sector during 2022 bolstered the growth prospects of the related stocks. Also, the recently passed Inflation Reduction Act has bolstered the prospects of U.S. solar stocks. However, the UFLPA and consistent supply-chain challenges might continue to hurt the near-term prospects of solar stocks to some extent. Nevertheless, considering the rapidly growing demand for renewable energy among electricity developers as the preferred source, investors might keep some solar stocks on their watchlist. The forerunners in the U.S. solar industry are Enphase Energy (ENPH - Free Report) , First Solar (FSLR - Free Report) and Canadian Solar (CSIQ - Free Report) .
About the Industry
The Zacks Solar industry can be fundamentally segregated into two groups of companies. While one group is involved in designing and producing high-efficiency solar modules, panels, and cells, the other set is engaged in installing 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. Per a report by Solar Energy Industries Association (SEIA) published in March 2023, buoyed by robust installation trends, solar accounted for 50% of all new electricity-generating capacity added in the United States in 2022, reflecting an improvement from 46% in 2021. This represents solar’s largest-ever share of generating capacity. It ranked first among all technologies for the second year in a row.
3 Trends Shaping the Future of the Solar Industry
Record Solar Installations Boost Prospects: With growing demand over the past couple of quarters, the U.S. solar industry has been witnessing a solid upside, 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 residential solar segment installed almost 6 GWdc in 2022, up a solid 40% over 2021. We expect to witness similar robust solar growth in the United States going forward. To this end, the SEIA expects total solar installations in 2023 to reach 28.4 GWdc, reflecting a stark improvement of 41% from 2022’s tally. Such impressive projections are indicative of a bright outlook for U.S. solar stocks.
Inflation Reduction Act to be Growth Catalyst: The historic Inflation Reduction Act (IRA) passed by the U.S. Senate this August is projected to be a solid growth catalyst for U.S. solar stocks. The latest ruling by the Biden administration is expected to be a major growth driver for the solar industry. As part of this Act, for the first time, the U.S. solar industry will have access to production tax credits and an investment tax credit for domestic manufacturing across the solar value chain. SEIA and Wood Mackenzie project IRA to aid the U.S. solar market to grow 40% through 2027. This, in turn, should boost the U.S. solar stocks’ growth trajectory.
Supply-Chain Challenges & UFLPA Might Hurt: Supply-chain constraints have been hurting the solar industry, a trend expected to continue in the near term. To this end, Wood Mackenzie announced its expectation that the solar industry would remain supply constrained through at least the second half of 2023. Due to near-term supply-chain constraints, SEIA expected 77% of the effect of the IRA to materialize in the utility-scale segment beginning in 2024. Consequently, the supply-chain issue is expected to remain an overhang on utility-scale solar installations. In June 2021, the Uyghur Forced Labor Prevention Act (UFLPA) went into effect and resulted in the detention of solar modules, exacerbating ongoing supply-chain challenges. To this end, SEIA projects that UFLPA could limit solar deployment through 2023 due to module availability constraints, delaying the near-term effectiveness of the IRA to 2024 and beyond. These factors make the near-term outlook for solar stocks somewhat bleak.
Zacks Industry Rank Reflects Bright Outlook
The Zacks Solar industry is housed within the broader Zacks Oils-Energy sector. It currently carries a Zacks Industry Rank #97, which places it in the top 39% 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 bright 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 top 50% of the Zacks-ranked industries is due to a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimate for the current fiscal year has gone up 17.4% to $1.62 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 Beats Sector & S&P 500
The Solar Industry has outperformed both its sector and the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively gained 29.1%, while the Oils-Energy Sector has rallied 5.7% in the same time frame. However, the Zacks S&P 500 composite has declined 9%.
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 45.49X compared with the S&P 500’s 11.67X and the sector’s 2.93X.
Over the last five years, the industry has traded as high as 53.99X, as low as 23.86X and at the median of 43.57X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Solar Stocks Worth Watching
Canadian Solar: Based in Ontario, Canada, the company is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications. It designs, manufactures and delivers solar products and solar system solutions for both on-grid and off-grid use to customers worldwide. On Mar 7, 2023, the company revealed that three of its solar power projects in Japan, Oita Kitsuki, Gunma Takasaki, and Yamaguchi Hofu, totaling 42 megawatt-peak (MWp), reached commercial operation in the first quarter of 2023. These projects together are set to produce circa 53,000 MWh of renewable energy, equivalent to avoiding approximately 24,000 tons of annual carbon emissions.
The Zacks Consensus Estimate for Canadian Solar’s 2023 sales indicates an improvement of 40% from the prior-year reported figure. Earnings estimates for 2023 earnings estimates imply an improvement of 142.5% from the 2022 reported figure. The company currently carries a Zacks Rank #2 (Buy).
Price & Consensus: CSIQ
Enphase: Based in Fermont, CA, the company designs, develops, manufactures and sells home energy solutions, while microinverters remain its legacy product. On Mar 6, 2023, Enphase announced that its installers in Illinois have seen growing deployments of Enphase Energy Systems powered by IQ8 Microinverters. This reflects the growing demand for Enphase’s products in the U.S. solar market, which in turn should bolster its future growth.
The Zacks Consensus Estimate for Enphase’s 2023 sales indicates an improvement of 36% from the prior-year reported figure. Earnings estimates for 2023 imply an improvement of 18.2% from the 2022 reported figure. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: ENPH
First Solar: Based in Tempe, AZ, the company is a leading global provider of comprehensive PV solar energy solutions, and specializes in designing, manufacturing and selling solar electric power modules using proprietary thin-film semiconductor technology. On Feb 28, 2023, the company released its fourth-quarter and full-year 2023 results. Its Q4 net sales, worth $1 billion, indicates an improvement of $0.4 billion from the prior year quarter, primarily driven by increased module sales.
The Zacks Consensus Estimate for First Solar’s 2023 sales indicates an improvement of 33.3% from the prior-year reported figure. The company boasts a four-quarter average earnings surprise of 8.61%. The company currently carries a Zacks Rank #3.
Price & Consensus: FSLR
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3 Solar Stocks to Watch Amid Growing Residential Installations
Increased solar installations in the U.S. residential sector during 2022 bolstered the growth prospects of the related stocks. Also, the recently passed Inflation Reduction Act has bolstered the prospects of U.S. solar stocks. However, the UFLPA and consistent supply-chain challenges might continue to hurt the near-term prospects of solar stocks to some extent. Nevertheless, considering the rapidly growing demand for renewable energy among electricity developers as the preferred source, investors might keep some solar stocks on their watchlist. The forerunners in the U.S. solar industry are Enphase Energy (ENPH - Free Report) , First Solar (FSLR - Free Report) and Canadian Solar (CSIQ - Free Report) .
About the Industry
The Zacks Solar industry can be fundamentally segregated into two groups of companies. While one group is involved in designing and producing high-efficiency solar modules, panels, and cells, the other set is engaged in installing 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. Per a report by Solar Energy Industries Association (SEIA) published in March 2023, buoyed by robust installation trends, solar accounted for 50% of all new electricity-generating capacity added in the United States in 2022, reflecting an improvement from 46% in 2021. This represents solar’s largest-ever share of generating capacity. It ranked first among all technologies for the second year in a row.
3 Trends Shaping the Future of the Solar Industry
Record Solar Installations Boost Prospects: With growing demand over the past couple of quarters, the U.S. solar industry has been witnessing a solid upside, 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 residential solar segment installed almost 6 GWdc in 2022, up a solid 40% over 2021. We expect to witness similar robust solar growth in the United States going forward. To this end, the SEIA expects total solar installations in 2023 to reach 28.4 GWdc, reflecting a stark improvement of 41% from 2022’s tally. Such impressive projections are indicative of a bright outlook for U.S. solar stocks.
Inflation Reduction Act to be Growth Catalyst: The historic Inflation Reduction Act (IRA) passed by the U.S. Senate this August is projected to be a solid growth catalyst for U.S. solar stocks. The latest ruling by the Biden administration is expected to be a major growth driver for the solar industry. As part of this Act, for the first time, the U.S. solar industry will have access to production tax credits and an investment tax credit for domestic manufacturing across the solar value chain. SEIA and Wood Mackenzie project IRA to aid the U.S. solar market to grow 40% through 2027. This, in turn, should boost the U.S. solar stocks’ growth trajectory.
Supply-Chain Challenges & UFLPA Might Hurt: Supply-chain constraints have been hurting the solar industry, a trend expected to continue in the near term. To this end, Wood Mackenzie announced its expectation that the solar industry would remain supply constrained through at least the second half of 2023. Due to near-term supply-chain constraints, SEIA expected 77% of the effect of the IRA to materialize in the utility-scale segment beginning in 2024. Consequently, the supply-chain issue is expected to remain an overhang on utility-scale solar installations. In June 2021, the Uyghur Forced Labor Prevention Act (UFLPA) went into effect and resulted in the detention of solar modules, exacerbating ongoing supply-chain challenges. To this end, SEIA projects that UFLPA could limit solar deployment through 2023 due to module availability constraints, delaying the near-term effectiveness of the IRA to 2024 and beyond. These factors make the near-term outlook for solar stocks somewhat bleak.
Zacks Industry Rank Reflects Bright Outlook
The Zacks Solar industry is housed within the broader Zacks Oils-Energy sector. It currently carries a Zacks Industry Rank #97, which places it in the top 39% 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 bright 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 top 50% of the Zacks-ranked industries is due to a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimate for the current fiscal year has gone up 17.4% to $1.62 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 Beats Sector & S&P 500
The Solar Industry has outperformed both its sector and the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively gained 29.1%, while the Oils-Energy Sector has rallied 5.7% in the same time frame. However, the Zacks S&P 500 composite has declined 9%.
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 45.49X compared with the S&P 500’s 11.67X and the sector’s 2.93X.
Over the last five years, the industry has traded as high as 53.99X, as low as 23.86X and at the median of 43.57X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Solar Stocks Worth Watching
Canadian Solar: Based in Ontario, Canada, the company is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications. It designs, manufactures and delivers solar products and solar system solutions for both on-grid and off-grid use to customers worldwide. On Mar 7, 2023, the company revealed that three of its solar power projects in Japan, Oita Kitsuki, Gunma Takasaki, and Yamaguchi Hofu, totaling 42 megawatt-peak (MWp), reached commercial operation in the first quarter of 2023. These projects together are set to produce circa 53,000 MWh of renewable energy, equivalent to avoiding approximately 24,000 tons of annual carbon emissions.
The Zacks Consensus Estimate for Canadian Solar’s 2023 sales indicates an improvement of 40% from the prior-year reported figure. Earnings estimates for 2023 earnings estimates imply an improvement of 142.5% from the 2022 reported figure. The company currently carries a Zacks Rank #2 (Buy).
Price & Consensus: CSIQ
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Enphase: Based in Fermont, CA, the company designs, develops, manufactures and sells home energy solutions, while microinverters remain its legacy product. On Mar 6, 2023, Enphase announced that its installers in Illinois have seen growing deployments of Enphase Energy Systems powered by IQ8 Microinverters. This reflects the growing demand for Enphase’s products in the U.S. solar market, which in turn should bolster its future growth.
The Zacks Consensus Estimate for Enphase’s 2023 sales indicates an improvement of 36% from the prior-year reported figure. Earnings estimates for 2023 imply an improvement of 18.2% from the 2022 reported figure. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: ENPH
First Solar: Based in Tempe, AZ, the company is a leading global provider of comprehensive PV solar energy solutions, and specializes in designing, manufacturing and selling solar electric power modules using proprietary thin-film semiconductor technology. On Feb 28, 2023, the company released its fourth-quarter and full-year 2023 results. Its Q4 net sales, worth $1 billion, indicates an improvement of $0.4 billion from the prior year quarter, primarily driven by increased module sales.
The Zacks Consensus Estimate for First Solar’s 2023 sales indicates an improvement of 33.3% from the prior-year reported figure. The company boasts a four-quarter average earnings surprise of 8.61%. The company currently carries a Zacks Rank #3.
Price & Consensus: FSLR