Solar In 'Early Innings,' Oppenheimer Says

According to Colin Rusch of Oppenheimer, the solar sector represents a "high growth opportunity" due to improving cost structures, lower commodity risks and an improving policy environment. In a report published Tuesday, Rusch stated that solar is a "cost leader" for new electricity generation technologies and will grow at a better rate versus competing technologies. The analyst added that solar is poised to benefit from several decades of cost reduction and has finally reached a point where it is competitive in pricing versus other forms of power, including natural gas. Rusch also noted that the industry experienced a "shakeout" in 2012 and 2013 with many firms either going bankrupt or evolved into "stronger" and "more resilient" companies that are now in a position to benefit from ongoing industry growth. Finally, Rusch offered four major drivers of growth: 1) increased global economic competition resulting in utilization of more efficient technologies, 2) intermittent renewable energy integration, 3) adoption of mobile and stationary energy storage devices, and 4) policy adjustments at government levels. "Having reached a scale of $100B-plus in annual revenue, we believe solar remains in the early innings of its growth trajectory," Rusch wrote. "We continue to see innovation in the technology, channel development, and financing for solar as well as significant dislocation due to that innovation, providing investors with an opportunity for above average performance."

Rusch continued that while solar is still in the "early stages" of development, solar stocks typically carry a "relatively high" beta as solar companies "can either benefit or suffer." He also noted that solar stocks are "significantly" undervalued and "prepped for a recovery' following the recent sell-off in solar stocks (in part related to energy commodity price correction) and the general market. Long term investors are best to invest in a solar company that offer "flexible" and "diverse" platforms across multiple regions and segments. At the same time, Rusch also sees companies serving sub-markets as "potential trading situations." The analyst highlighted

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. Rusch also pointed out that investors should also consider solar companies with the lowest cost of capital and long-term, cheaper capital should result in sustained market-share gains. The analyst singled out both SunPower and First Solar as sharing a low cost of capital through their joint yieldcos. Bottom line, solar stocks have demonstrated "dramatic" moves both to the up and downside for various reasons such as policy shifts and periods of supply constraints and excess. As such, the underlying volatility may have "scared" many investors, but solar is a "primer for a new era."