What happened to solar stocks? Investors 'pick up the pieces' after a brutal earnings season
By Claudia Assis
Enphase's stock loses 70% this year
Things were looking up for the U.S. solar-power industry. The Inflation Reduction Act, the climate legislation that passed in August 2022, boosted the savings of anyone looking to go solar, among its several clean-energy incentives.
A little over a year later, however, investors sentiment about solar, particularly residential solar, is at a trough, the IRA notwithstanding.
"After a painful earnings season, we look to pick up the pieces and move forward," James West, a analyst with Evercore ISI, said in a note Tuesday.
Just about every major U.S. solar company had big quarterly misses. Invesco Solar ETF TAN is down nearly 40% this year, contrasting with gains of around 14% for the S&P 500 index SPX.
Shares of Enphase Energy Inc. (ENPH), which sells microinverters widely used in solar-power systems and can stand in as a barometer for solar, among other wares, are down more than 70% in the year. As recently as 2020, the stock drew triple-digit yearly gains; it rose 45% last year.
"Investor sentiment on solar stocks remains poor driven by persistent industry issues, continued market uncertainties, and of course recent stock performance," West said.
The "new normal" for solar companies is likely to be annual growth of around 15% compound annual growth rate, thanks to "the large public companies with strong liquidity on hand to take share and grow at a faster pace," the analyst said.
The sell-off created multi-year low valuations offering "attractive entry points" to those willing to buy on the dip. Evercore's top residential solar names continue to be SunRun Inc. (RUN), Sunnova Energy International Inc. (NOVA), Enphase, and SunPower Corp. (SPWR), he said.
Some of the concerns hitting the industry remain "higher for longer" interest rates, cutting down on demand for residential solar. Going solar, even with IRA incentives, is a costly endeavor, and most homeowners do not have upwards of $20,000 to invest in a system.
Distributors are working through high levels of inventories, which they bought at higher prices than current prices.
SolarEdge Technologies Inc. (SEDG) warned late last month that starting in the second half of the third quarter it experienced "substantial unexpected cancellations and pushouts of existing backlog" from our European distributors, a dip it said wasn't related to the Israel-Hamas war.
The company attributed the cancellations and pushouts to higher-than-expected inventory and slower-than-expected installation rates.
Then there's California. The state, which long has been the No. 1 state by cumulative solar capacity installed, implemented late last year a new way to calculate how much homeowners get from their utility company for the excess solar power they send back to the grid.
The new policy, implemented in April, reduces that amount by about 75%, meaning that paybacks for residential solar got much longer.
The new policy also puts many in California on a learning curve, with salespeople and customers working to understand a market where, suddenly, stationary storage could make more sense than sending back to the grid your now less-valued excess power.
And as SolarEdge showed, another solar powerhouse, Europe, also faces a slowdown among macroeconomic concerns.
Some analysts are more sanguine about residential solar in the long run. SunRun lowered its 2023 outlook for growth in customers, but half of that reduction came from weakness in the California market, Roth MKM analyst Philip Shen said in a recent note.
"That said, we still expect [SunRun] to outperform in California in the coming quarters," Shen said. "All in, the lower 2023 volumes, in our view, represent just a pause, while the company pivots to storage, which represents a greater point of differentiation and provides a pathway to stronger competitive advantages ahead."
BloombergNEF recently forecast rosier times for the broader solar in the long run. Most of the increase will be in home solar, the research provider said, "which will overcome financing constraints thanks to long-term cost declines."
-Claudia Assis
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
11-07-23 1314ET
Copyright (c) 2023 Dow Jones & Company, Inc.-
10 Stocks With the Largest Fair Value Estimate Increases After Q1 Earnings
-
Markets Brief: Inflation Back in the Spotlight
-
AI Is Booming, but Consumer Spending Is Slowing. Which Will Prevail in the Stock Market?
-
What’s Happening In the Markets This Week
-
Is the Era of Volatility-Suppressing Policies Possibly Over?
-
5 Undervalued Stocks That Crushed Earnings for Q1 2024
-
What Does Nvidia’s Stock Split Mean for Investors?
-
After Earnings, Is Home Depot Stock a Buy, a Sell, or Fairly Valued?
-
After Earnings, Is Target Stock a Buy, Sell, or Fairly Valued?
-
Obesity Drug Stocks: Where to Invest Now
-
How to Invest Like Warren Buffett
-
DuPont Split Gives Investors Better Choices
-
2 Wide-Moat Stocks to Consider
-
Live Nation: Breakup Sought by Department of Justice Probably Wouldn’t Affect Fair Value Much
-
After Earnings, Is Applied Materials Stock a Buy, Sell, or Fairly Valued?
-
The Best Energy Stocks to Buy