Deutsche Bank: We're Still Bullish On Solar

Deutsche Bank said it remains bullish on solar fundamentals in 2016 despite a relatively weak oil pricing outlook. Analyst Vishal Shah continues to see the outperformance of stocks such as First Solar, Inc. FSLR into the upcoming April Analyst Day and expects additional positive catalysts for stocks such as Sunedison Inc SUNE and SolarCity Corp SCTY over the next few months.

Despite the generally robust fundamentals, solar stocks have had mixed performance during the fourth quarter earnings season, primarily due to company specific execution and financing concerns.

Companies with relatively robust balance sheet, simpler investment theses and valuation frameworks have performed better compared to companies with more complex theses and valuation framework.

"Oil represents less than 5% of global electricity generation and spending on T&D is increasing to become a larger percentage of overall utility capex which would continue to drive an increase in electric power rates," Shah said in a note to clients.

"Our analysis suggests that retail electricity prices in the US have increased at 2-3% nominal rate over the long term and this trend is likely to continue in the near term, providing support to residential PPA rates offered by solar leasing companies," he added.

Shah noted that SunPower Corporation SPWR shares offer a very attractive risk-reward profile especially since he expects the company to continue to generate positive EBITDA growth in 2017 from a combination of ramp of utility scale project pipeline, share gains in the US utility solar market.

In the case of First Solar, although shares have outperformed post earnings analyst believes the $4-4.50 EPS guidance for 2016 is conservative especially since the fourth quarter beat was largely driven by upside to module/BoS costs and 2016 EPS only assumes modest increase in margins from better project mix.

In the case of SunEdison, the Appaloosa case was one of the biggest overhangs on SUNE shares and a favorable decision clears the way for SunEdison to close the Vivint Solar Inc VSLR transaction as well as should enable the company to focus on execution.

"In terms of timing, we expect the VSLR deal to be closed by March 18 and post the close, we really see one of two scenarios playing out -either SUNE finds a buyer for VSLR operating assets or TERP will be required to buy these assets," Shah added.

Shah has Buy ratings on SunPower, First Solar, SunEdison and SolarCity.