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Coronavirus to Affect China's Solar Market: Stocks to Buy

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The novel coronavirus outbreak has put pressure on China’s solar market, particularly on the supply side. The extended shutdown implemented in factories to contain the spread of the virus is expected to have slowed down the production rate.

As a result, overall capacity growth in the first quarter of 2020 is widely expected to decelerate. Consequently, solar stocks are expected to show sluggish growth in the near term.

How Coronavirus Might Impact Solar?

China leads the world both in terms of solar farm installations and production of photovoltaic panels used almost everywhere. Of the top 10 solar cell makers, nine are China based (per a report by Bloomberg).

Notably, post the outbreak, PV production capacity has been hit in Jiangsu province, where more than 60% of China’s solar panels are made, according to the Gofa Institute, a wing of the government’s National Energy Administration. As a result, the market is worried that the shortage of material supply and logistical limitations due to closed borders may shoot up the price of modules, which otherwise was plummeting rapidly. The shortage is also expected to push back delivery time.  

Since China remains the world’s largest solar module producer, a disruption in the supply chain of key solar equipment has the potential to hit not only its solar market but the entire global solar industry.

China Photovoltaic Industry Association stated that overseas plants could be hit as they will be unable to receive components from China given flight restrictions. Moreover, Ali Izadi-Najafabadi, head of analysis in Asia for BloombergNEF, stated that if the virus outbreak lasts beyond the first quarter and spreads to more geographies, as is currently happening in Korea and Italy, then it may well slow down global renewable energy deployment.

Coming to the current situation, the number of people killed worldwide by the coronavirus has exceeded 3,000 (as per a latest report by BBC News), with more than 90% of the total deaths reported in China’s Hubei province.

Considering the alarming rate at which this epidemic is spreading worldwide, the supply chain disruption in China’s solar market is surely going to affect the global solar industry.

Dismal Outlook

As the number of coronavirus cases rise, analysts have lowered their forecast for the Chinese solar market, which in a ripple effect might weigh on the global solar industry’s prospect. Notably, BloombergNEG analysts now expect a maximum of 43 gigawatts (GW) of solar installations in China this year, compared with 45 gigawatts projected earlier.

Per a senior analyst from Wood Mackenzie, late module delivery will affect project construction schedules around the world, and projects with Q3 and Q4 2020 placed-in-service dates are likely to be hit.

Stocks to Buy

Considering the aforementioned discussion, we mention here a handful of solar stocks that are likely to bear the effect of the coronavirus outbreak. However, their favorable Zacks Rank and positive earnings growth expectation should keep them in investors’ portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SolarEdge Technologies (SEDG - Free Report) : This Israel-based solar inverter manufacturer said on its fourth-quarter earnings call that it has increased manufacturing capacity at factories in Hungary and Vietnam to meet customer demand. It expects, however, to do air shipments in the first quarter because of the coronavirus, which will put pressure on its gross margin. This Zacks Rank #1 stock has an earnings growth expectation of 16.6% in 2021.

Enphase Energy (ENPH - Free Report) : This California-based solar microinverter producer has ramped up its manufacturing capacity in Mexico as a backup in case of supply disruptions, since it is seeing some sign of goods constraint from China. Nevertheless, Enphase said it does not expect a big impact to Q1 revenues from the coronavirus at this point. This #1 Ranked stock has an earnings growth expectation of 8.7% in 2021.

SunPower Corp. (SPWR - Free Report) : This California-based solar panels manufacturer expects losses this year despite its return to profitability in 2019, as stated in the latest announcement. The firm currently expects to incur GAAP net losses of $145-195 million for 2020. In Q1 alone, net losses could reach $70-85 million. This comes as a surprise after CEO Tom Werner said on the fourth-quarter earnings call that the company is expected to have a “minimal impact” from the coronavirus crisis on its Q1 figures. This Zacks Rank #2 (Buy) stock has an earnings growth expectation of 812.5% in 2021.

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