Government incentives for installing solar panels to reach net-zero carbon emissions have worked favorably for the solar industry. Moreover, as the solar Investment Tax Credit (ITC) will decrease to a permanent 10% for commercial installers and will completely disappear for home buyers by 2023, companies and homeowners might rush to install solar panels in the near term to benefit from the high ITC now. This could lead to a further surge in sales of solar panels.
The global solar energy market is projected to reach $223.3 billion by 2026, exhibiting a CAGR of 20.5%. While most players in the solar space have been benefiting from the industry tailwinds, some are struggling to stay afloat due to intense competition. Moreover, supply constraints of solar equipment components like polysilicon, copper, semiconductor chips, and other metals are marrying their growth.
Given this backdrop, it could be wise to avoid solar stocks possessing weak fundamentals and poor growth prospects. Because of fragile financial health, Sunrun Inc. (RUN) and JinkoSolar Holding Co., Ltd. (JKS) have been recently downgraded by analysts. Therefore, these two stocks are best avoided now.
Sunrun Inc. (RUN)
Incorporated in 2007, RUN is a home solar panel and battery storage company that offers products like solar leads, panels, and racking to mainly residential homeowners. The company also provides rechargeable solar battery systems, custom solar designs, and personalized services. RUN was downgraded by research analysts at TheStreet from a “C” to a “D” last week.
During the second quarter that ended June 30, 2021, RUN’s total operating expenses increased 105.1% year-over-year to $542.94 million. The company’s loss from operations grew 69.8% from the year-ago value to $141.77 million. Its net loss rose 58.6% from the prior-year quarter to $213.41 million. Also, the company’s loss per share increased 81.8% year-over-year to $0.2.
Analysts expect RUN’s EPS to decline 103.6% in the current quarter. The company has failed to surpass the consensus EPS in three of the trailing four quarters. Also, its stock price has decreased 34.4% over the past nine months and 32.2% over the past year.
JinkoSolar Holding Co., Ltd. (JKS)
Headquartered in Shanghai, China, JKS is a solar module manufacturer that distributes and sells solar products and services. The company provides solutions to commercial and residential customers based in China, the United States, UAE, and other countries. JKS also has a vertically integrated solar product value chain with an integrated annual capacity of 27 GW for mono wafers, 12 GW for solar cells, and 31 GW for solar modules. Roth Capital has recently lowered its price target on JKS’ stock from $58.00 to $51.00.
This month, JKS invested $500 million to build a monocrystalline ingot and wafer manufacturing facility in Quảng Ninh Province, Vietnam. The project is expected to have an annual capacity of 7GW to support its existing overseas production facilities. Although through this investment, the company can supply steady and premium modules to its customers, it could negatively impact its cash balance in the near term.
During the second quarter that ended June 30, 2021, JKS’ total revenue decreased 6.2% year-over-year to RMB7.93 billion ($1.23 billion). The company’s gross profit declined 10.2% year-over-year to RMB1.36 billion ($210.4 million). Its income from operations reduced 18% year-over-year to RMB356.38 million ($55.17 million). Also, the company’s net income decreased 51.6% year-over-year to RMB166.89 million ($25.84 million).
JKS’ EPS is expected to decrease 3.5% in the current year and 96.2% in the current quarter. The stock has declined 39% over the past nine months and 28.8% year-to-date.
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RUN shares were trading at $42.05 per share on Wednesday afternoon, down $0.90 (-2.10%). Year-to-date, RUN has declined -39.39%, versus a 17.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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