Impressive projections for the U.S. residential solar market in 2023 bode well for U.S. solar stocks. Also, the recently passed Inflation Reduction Act has bolstered the prospects of U.S. solar stocks. However, Uyghur Forced Labor Prevention Act (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 as the preferred source among electricity developers, an investor might keep some solar stocks on the watchlist. The forerunners in the U.S. solar industry are
First Solar ( FSLR Quick Quote FSLR - Free Report) , Canadian Solar ( CSIQ Quick Quote CSIQ - Free Report) and JinkoSolar Holdings ( JKS Quick Quote JKS - Free Report) . About the Industry
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 close to 6 GWdc in 2022, up by a solid 40% from 2021. We expect to witness similar robust solar growth in the United States going forward. To this end, Wood Mackenzie forecasts 7% growth for the residential solar market in 2023. 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 last 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 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 earlier announced its expectation that the solar industry will 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, at least in the near term. In June 2021, UFLPA went into effect and resulted in the detention of solar modules, exacerbating ongoing supply-chain challenges. 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 #84, which places it in the top 34% 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. 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 9.2%, while the Oils-Energy Sector has lost 16.2% in the same time frame. However, the Zacks S&P 500 composite has risen 0.4%.
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 30.42X compared with the S&P 500’s 12.67X and the sector’s 2.66X.
Over the last five years, the industry has traded as high as 54.22X, as low as 27.86X and at the median of 39.51X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Solar Stocks Worth Watching
JinkoSolar Holdings: Based in Shanghai, China, the company is a manufacturer of solar products like silicon wafers, solar cells and solar modules, with a global network spanning Europe, North America and Asia. On May 24, 2023, JinkoSolar announced that it has entered into an investment framework agreement with the Management Committee of Transformation Comprehensive Reform Demonstration Zone of Shanxi Province for an integrated project manufacturing monocrystalline silicon pull rods, silicon wafers, high-efficiency solar cells and modules. The project will be constructed in four phases, with an annual production capacity of 14 gigawatts (GW) for each phase. The Zacks Consensus Estimate for JinkoSolar’s 2023 sales indicates an improvement of 32% from the prior-year reported figure. Earnings estimates for 2023 indicate an improvement of 60.1% from the 2022 reported figure. The company currently sports a Zacks Rank #1 (Strong Buy). Price & Consensus: JKS 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 Jun 1, 2023, Canadian Solar announced that its subsidiary CSI Solar has entered into an agreement to deliver 49.5MW/99MWh of turnkey battery energy storage solutions to a leading European specialist in solar energy development, production and storage, Cero Generation and Enso Energy.
The Zacks Consensus Estimate for Canadian Solar’s 2023 sales indicates an improvement of 24.5% from the prior-year reported figure. Earnings estimates for 2023 imply an improvement of 63.7% from the 2022 reported figure. The company currently carries a Zacks Rank #3 (Hold).
Price & Consensus: CSIQ 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 a proprietary thin-film semiconductor technology. On May 12, 2023, First Solar announced that it has further strengthened its global leadership in thin film photovoltaics (PV) by acquiring Evolar AB, a European leader in perovskite technology. The acquisition is expected to accelerate the development of next-generation PV technology, including high-efficiency tandem devices, by integrating Evolar’s know-how with First Solar’s existing research and development streams, intellectual property portfolio, and expertise in developing and commercially scaling thin film PV.
The Zacks Consensus Estimate for First Solar’s 2023 sales indicates an improvement of 32.3% from the prior-year reported figure. The consensus estimate for earnings is pegged at $7.36, suggesting a massive improvement from a loss of 41 cents reported in 2022. The company currently carries a Zacks Rank #3.
Price & Consensus: FSLR