If you like your stocks beaten down, look no further than residential solar companies.
Evercore ISI analysts see a brighter future ahead for the sector and “attractive entry points” after a prolonged selloff.
A combination of high interest rates hitting demand, distributors working through high inventory levels, and a policy change reducing incentives in California, has made it a tough year for residential rooftop solar stocks.
A substantial demand reduction in Europe, which the analysts put down to broad macroeconomic conditions, is another part of the puzzle. “These factors have combined to form the perfect storm for the industry throughout the year,” analysts led by James West wrote in a research report.
But they are positive on the sector’s outlook and said the long-term industry growth drivers remain on track, with strong growth expected in the U.S. solar market.
Enphase Energy
(ticker: ENPH),
Sunnova Energy International
(NOVA),
Sunrun
(RUN), and
SunPower
(SPWR) are the analysts’ favorite names, and rate all at Outperform. They see
Sunrun
as having the biggest potential upside, with a price target of $43, implying a 320% gain on Monday’s closing price. West said the company was “quickly adapting” to the current environment by transitioning to a storage-first company, in a note earlier this month.
The sector’s gloomy run is perhaps the key reason to reconsider these stocks now. “The extended selloff of solar stocks has resulted in valuations moving to multiyear lows reaching new attractive entry points for the stocks.”
Enphase
is the second-worst performing stock in the
S&P 500
this year, tumbling 70% in 2023, as of Monday’s close. Only
SolarEdge Technologies,
down 75%, has fallen more. Evercore’s other favorites have also had bad years—Sunrun stock is down 57%, Sunnova stock has fallen 45%, and
SunPower
stock is 76% lower.
The storm clouds haven’t gone away just yet, but maybe the sun is just starting to peep through.
Write to Callum Keown at [email protected]
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