Recent months have made it clear that the Biden Administration’s embrace of the ‘Green Economy,’ and especially the clean energy sector, is far more than just skin deep.
The administration, from the Inflation Reduction Act signed last August to more recent multi-billion-dollar funding initiatives, has been going all-in on clean energy. The Biden White House has been promoting electric vehicles, pushing for solar and wind-powered energy production, and implementing tax and regulatory incentives to accelerate the shift from fossil fuel-powered energy to green alternatives.
Solar power has long been a favorite of the green energy lobby, and these developments are providing a direct boost to solar energy companies. As the demand for renewable energy continues to surge, solar energy companies are experiencing increased investment and growth.
Watching the sector from Goldman Sachs, 5-star analyst and clean energy expert Brian Lee has picked out 2 stocks in particular that are poised to benefit from the Biden Administration’s policies. Both are leaders in the solar power sector, and are strongly positioned to hold their leadership niches into the coming years.
SolarEdge Technologies (SEDG)
The first Goldman choice is SolarEdge Technologies, a company on the leading edge of the microinverter niche market. Microinverters are an essential piece of photovoltaic power generation installations as they convert the DC electrical current produced by the panels into AC current that is usable in household systems and the local power grids. SolarEdge has a true edge in this field, with approximately 40% market share in the US microinverter business.
In addition to microinverters, SolarEdge has its hand in a wide array of solar technology product lines. The company produces monitoring systems for photovoltaic installations, power optimizers, and even specialized solar-powered EV charging stations for residential use. SolarEdge sells these products directly to residential and commercial markets, with its customer base including retail customers, building owners, small businesses, construction clients, and installation professionals.
This past June, SolarEdge announced several new products, including a new bi-directional, DC-coupled EV charger. This new charger stations draws power directly from the solar panels – in DC current – and so can charge cars directly. The DC coupling also allows simultaneous vehicle charging from a home battery or the local AC grid. Another new product in the CSS, or commercial storage system, a 58kWh capacity battery suitable for indoor use. The CSS can be used to store power from the solar installation for use after dark, and is expected to be available in 2H24.
SolarEdge’s last reported quarter, 1Q23, beat expectations in both revenues and earnings. The company’s revenue total, of $943.9 million, was up 44% y/y and came in more than $12 million above expectations. The bottom line EPS figure, $2.90 by non-GAAP measures, was 95 cents per share better than the Street had anticipated.
Brian Lee, in his coverage of the stock for Goldman, believes the company will continue to beat the earnings forecasts. Explaining why, the analyst says, “While bears have intensified concerns around EU growth and pricing, of late, we believe SEDG has performed quite well in the near-term in the region given its strong C&I backlog, continued strength in FX that provides some stability – if not a slight tailwind – to gross margin, and a generally stable pricing strategy…”
“Though we would not base-case expansion into 2H23 per se, we believe SEDG continues to embed some level of conservatism in its near-term gross margin views and this could serve as a catalyst for positive surprise on earnings,” the analyst added.
For Lee, this backs up a Buy rating, while his $414 price target suggests a one-year upside potential of 51% to the stock.
Overall, this residential solar power leader gets a Strong Buy from Wall Street, based on 13 recent analyst reviews that feature a 12 to 1 advantage for Buys over Holds. The stock’s current trading price is $273.75 and its $378.69 average price target implies that a 12-month gain of ~38% is waiting for the shares. (See SEDG stock forecast)
First Solar (FSLR)
The next Goldman pick we’re looking at is First Solar, a solar power manufacturing firm that has been in the business since 1999 and is now the largest US-domiciled producer of the photovoltaic panels at the base of all solar technology. First Solar is currently on track to have 21 gigawatts of solar power generation built and deployed by 2026, and has spend a cumulative $1.5 billion on R&D over the years.
First Solar’s flagship product, its Series 6 and Series 6 Plus photovoltaic panels, have set an industry standard for generating reliable energy with their optimized design and environmentally friendly performance. These panels are capable of generating up to 480 watts each and boast an efficiency rate of 19%. Additionally, the company provides a 30-year performance warranty to back them up.
The company is actively working to introduce new technologies, and in June of this year it announced that it had put the world’s first bifacial solar panel utilizing an advanced thin film semiconductor into a limited production run. And earlier this month, First Solar also announced a secured agreement with Capital Power for the provision of a 1 gigawatt supply of responsibly produced, ultra-low carbon thin film solar modules.
On the financial side, however, First Solar fell short of expectations in the last reported quarter, 1Q23. The company reported a total revenue of $548.29 million, reflecting a 49% year-over-year decline and missing analyst expectations by $168.37 million. Additionally, the company’s bottom-line EPS figure, at 40 cents per share in net profit, was 55 cents below the forecast. On a positive note, First Solar’s earnings represented a strong reversal from the net loss in the same quarter of the previous year.
Investors were not all that pleased with the report, with the shares falling consequently. However, if we look at the bigger picture, FSLR still boasts a solid 33% gain year-to-date.
According to Goldman’s Brian Lee, there are further positive developments on the horizon that could potentially bolster First Solar’s stock in the coming months.
“We remain bullish on FSLR ahead of multiple catalysts brewing in 2H23 that we see having the potential to drive consensus estimates – and thus the stock – higher. In particular, our field work suggests more active discussions around the manufacturing capacity expansion (likely in Southeast US) could make for the next headline catalyst on the docket heading into 2Q earnings, while our discussions with the supply chain suggest bookings activity in the US utility-scale sector has also seen some improvement following Treasury’s updated guidance around domestic content rules in the Inflation Reduction Act,” Lee opined.
Predicting a brighter future for First Solar, Lee reiterates his Buy rating for the stock and sets a $272 price target to imply a one-year potential gain of 37%. (To watch Lee’s track record, click here)
Overall, there are 19 analyst reviews on file for FSLR, breaking down to 7 Buys, 11 Holds, and a single Sell, and giving the stock a Moderate Buy analyst consensus rating. The stock is selling for $198.58 and has an average price target of $220.92, suggesting ~11% upside on the one-year horizon. (See FSLR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.