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Barclays Breaks Down Its Outlook On Solar

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Barclays Breaks Down Its Outlook On Solar

Barclays believes the second-quarter results from the solar segment were not a one-off "weak quarter." The brokerage sees an inflection point in the segment fueled by consequences of unplanned policy, apart from the limitations on the technologies in the sector. Therefore, there was no change to the Neutral rating on the sector.

Barclays analysts, Jon Windham, Daniel Ford and William Grippin, have slashed their estimates for the year 2017, citing the drop in volume, narrowing gross margins and slowdown in installations in the residential segment. The brokerage has also slashed its price earnings multiples target by seven percent. As a result, on average, price targets were reduced by 34.3 percent in the solar space.

However, the brokerage expects the conditions to change from the second half of the year 2018. The lead analyst said in the research note, "Ultimately we expect strong demand to begin to return in the U.S. 2H18, driven by solar build-out ahead of the EPA's Clean Power Plan (CPP) compliance deadline in 2022-2024. We expect ample opportunity for well-established solar developers (FSLR, SPWR) to take advantage of the rebound."

Related Link: Barclays Downgrades Canadian Solar, Cautious On Leverage

A Closer Look

On First Solar, Inc. (NASDAQ: FSLR), the brokerage continued to see the stock as the "best positioned to weather a potential 2017 downturn," pointing out its net cash position of $20 a share. The lead analyst recently slashed its rating from Overweight to Neutral, citing the headwinds faced by the industry.

Similarly, on SunPower Corporation (NASDAQ: SPWR), Barclays sees difficulties ahead for the company as it plans to shift focus on the distributed generation business by the end of the next year. Recently, its rating was downgraded from Equal Weight to Neutral. The lead analyst thinks the stock could enter a "penalty box" due to 39 percent drop in its forecast for the fiscal year 2016.

Barclays termed Canadian Solar Inc. (NASDAQ: CSIQ) a "high-risk name," pointing out the 5.9x leverage. Its net debt compared to EBITDA increases the risk relative to others in the industry. The stock was also downgraded from Equal Weight to Neutral recently.

On Solaredge Technologies Inc (NASDAQ: SEDG), the brokerage sees the company as its preferred residential exposure due to customer diversification and robust balance sheet. Shares of the company were downgraded from Overweight to Neutral recently. Slower-than-expected solar growth in the residential segment and uncertain policy are viewed as the key risks for downside.

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Latest Ratings for FSLR

DateFirmActionFromTo
Apr 2019ReiteratesBuy
Apr 2019ReiteratesBuy
Jan 2019Initiates Coverage OnOverweight

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