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Which Solar Stocks Offer Handsome Upside Potential?

Vineet Kulkarni - Author

Aug. 16 2019, Published 10:14 a.m. ET

Solar stocks were weak after the trade war escalated. After President Trump’s higher tariffs, China retaliated by devaluing the yuan.

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What to expect from solar stocks

The devaluation will likely increase the competition for US panel makers. However, analysts are still positive about the solar sector. Many solar companies increased their earnings guidance for the rest of the year after dismal numbers in the second quarter.

First Solar

Based on analysts’ estimates, First Solar (FSLR) has a mean target price of $77.1, which suggests an estimated upside of more than 30% for the next 12 months. Currently, the stock is trading at $59.3. The company continued to report losses in the second quarter but raised its earnings guidance. Strong demand for solar energy and production ramp-ups will likely be First Solar’s key growth drivers in the next few quarters.

From the valuation perspective, First Solar stock looks attractive. The stock is trading 17x its earnings for the next 12 months. Analysts expect the company’s earnings to more than double in the next few quarters, which makes its valuation look good.

According to the latest 13F filing, Invesco Advisers added 2 million First Solar shares during the second quarter. On June 30, Invesco Advisers held close to 2% in First Solar.

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Sunrun (RUN), one of the biggest solar installer companies, is trading at $14.7. Analysts have given the company a mean target price of $22.8, which indicates a potential upside of 55% for the next 12 months. So far, the stock has risen more than 35% this year.

Sunrun stock is trading more than 30x its forward earnings. The company also reported a net loss in the last few quarters. Analysts expect a huge turnaround in the company’s earnings in the next few quarters. According to the recent 13F filings, American hedge fund Tiger Global Management increased its stake in Sunrun in the second quarter. As of June 30, Tiger Global Management held approximately 22% in Sunrun—up from 17.7% in the first quarter.

Solar stocks look promising

Solar stocks have been on an impressive run this year. So far, Enphase Energy (ENPH) stock has risen more than 530% in 2019. The company offers a potential downside of 2%. Analysts have given Enphase Energy a mean target price of $29.1 compared to its market price of $29.8. SunPower (SPWR) stock will likely fall based on analysts’ estimates. The company has a target price of $11.3 compared to its current market price of $12.4. SunPower stock has rallied 150% YTD (year-to-date).

Investors might continue to be bullish on the sector due to management’s upbeat guidance. According to the U.S. Energy Information Administration, the monthly average of solar PV module imports was 644,000 kilowatts in the first four months of 2019. The number of imports increased from an average 300,000 kilowatts in the same period last year. The demand for imported silicon solar cells and modules fell last year due to additional tariffs. The EIA said that a persistent decrease in solar module costs might have compensated for some of the solar tariffs.


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