Solar stocks have lost about 40 percent year-to-date, against the backdrop of a tough cyclical environment. While saying it seemed too early to expect a cyclical inflection, Goldman Sachs’ Brian Lee mentioned in a report that it was “time to pick through the cycle, not buy it.”
The analyst maintained a Neutral rating on the Solar sector.
The lack of supply response and ongoing pricing pressures would likely prevent a cyclical inflection in the near term. It was time to be selective, Lee stated and changed the ratings on various solar stocks.
First Solar
Lee downgraded the rating on First Solar, Inc. FSLR from Buy to Neutral, while reducing the price target from $58 to $42. The new price target reflects an upside of merely 6 percent, versus an average upside of 10 percent for the US solar coverage.
“While long-term risk-reward remains more compelling for the company vs others in our coverage, our positive expectations on volume upside potential and better-than-expected EPS power heading into 2017 have not been fulfilled,” the analyst wrote.
There are no fundamental catalysts visible in the near term, with systems bookings are unlikely to materialize in the back half of 2016, while module ASPs are declining faster than expected. The EPS estimates for 2016, 2017 and 2018 have been reduced from $3.45 to $3.44, from $3.38 to $2.31 and from $4.16 to $2.79, respectively.
SolarEdge
The analyst downgraded the rating on Solaredge Technologies Inc SEDG from Neutral to Sell, while reducing the price target from $19 to $13. The new price target reflects a downside of 25 percent.
The company executed well during the initial stages of the cyclical downturn, beating Street EPS expectations for the past five quarters.
Lee mentioned, however, that SolarEdge’s growth would likely come under pressure because of “a reversal in market share gains due to intensifying pricing pressure and a more moderate pace of growth in its core residential vertical – per guidance by some of SolarEdge’s key customers.”
The non-GAAP EPS estimates for FY2017, FY2018 and FY2019 have been reduced by 12 percent to $1.69, by 30 percent to $1.06 and by 30 percent to $0.80, respectively, to reflect lower volumes and ASPs as well as lower energy storage revenue estimates.
Sunrun
Lee upgraded the rating on Sunrun Inc RUN from Neutral to Buy, while raising the price target from $7 to $10. The new price target reflects an upside of 59 percent.
The analyst believes Sunrun would generate above-market growth due to its ongoing share gains in the US solar residential market, “which we expect to be a rare source of growth in a depressed cyclical backdrop for the global solar industry heading into 2017.” Being a downstream installer, Sunrun is also poised to benefit from lower costs, with rapidly declining solar equipment prices.
The GAAP EPS estimates for F2016, F2017 F2018E have been raised from ($0.92) to $0.33, from ($2.37) to ($0.01) and from ($2.14) to $0.31, respectively, reflecting lower costs and higher non-controlling interests income.
Vivint Solar
The analyst upgraded the rating on Vivint Solar Inc VSLR from Sell to Neutral, while raising the price target from $2.50 to $3.50. The new price target reflects an upside of 11 percent.
After its failed acquisition by Sunedison Inc SUNEQ, Vivint seems to be addressing its financing and execution issues. “Near-term, we still see risk to volumes given a dearth of tax equity capacity (particularly in 4Q16) but see less risk of a dilutive equity raise as previously modeled given recent access to debt capital and a slowing growth trajectory,” Lee commented.
The non-GAAP EPS estimates for 2016, 2017 and 2018 have been raised from ($2.17) to ($2.09), from ($1.62) to ($1.59) and from ($1.46) to ($1.36), respectively, reflecting lower component costs.
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