Growing concerns about climate change are forcing global leaders to focus more on transitioning their countries to sustainable-energy-based economies. On the domestic front, the Biden administration has proposed to spend $2 trillion-plus on infrastructure development, including clean energy. Massachusetts lawmakers recently proposed a bill that would require rooftop solar panels on new residential and commercial buildings, and the federal government plans to add more than 500 million solar panels to America’s energy infrastructure over the next five years.
Hence, with the rising focus on clean energy, the industry is well-positioned for multi-decade growth. To put things in perspective, solar energy contributed nearly 4% of total renewable generation in 2016. This is expected to increase to 17% by 2030. However, the industry has been seeing a sell-off lately because companies are facing supply chain constraints and higher shipping costs amid record demand for solar panel installations. The mounting pessimism over the industry’s near-term prospects is evident in the Invesco Solar ETF’s (TAN) 21.7% loss over the past three months compared to SPDR S&P 500 ETF Trust’s (SPY) 10.2% gains.
Furthermore, investors expect the Fed to increase interest rates sooner than expected, thanks to rising inflationary pressures. This is a huge negative for the solar industry because solar projects require huge upfront costs, which are typically financed with debt. So, acknowledging these near-term headwinds, we believe shares of SolarEdge Technologies, Inc. (SEDG), Sunrun Inc. (RUN), Sunnova Energy International Inc. (NOVA) and ReneSola Ltd. (SOL) could remain under pressure for some time, and so it’s wise to avoid these stocks for now.
SolarEdge Technologies, Inc. (SEDG)
SEDG designs, develops, and sells direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations worldwide. Its SolarEdge system consists of inverters, power optimizers, communication devices, and smart energy management solutions used in residential, commercial, and small utility-scale solar installations. It also offers a cloud-based monitoring platform that collects and processes information from the power optimizers and inverters, as well as monitors and manages the solar PV system. In addition, SEDG offers pre-sales support, ongoing training, and technical support and after installation services.
In February, SEDG forged a strategic supply agreement with Sunrun Inc. (RUN), a leading U.S. provider of residential solar, battery storage, and energy services. As part of the deal, RUN will offer SEDG’s next generation PV SolarEdge Energy Hub inverter to its residential customers. Also, has SEDG begun the delivery of its full electrical powertrain units and batteries for the e-Mobility division in Europe to produce the Fiat E-Ducato light commercial vehicle and to grow the company’s business beyond solar.
SEDG’s revenues declined 6% year-over-year to $405.5 million in the first quarter ended March 31, 2021. This can be attributed to an 8% year-over-year decline in the sale of solar products that contributed $376.4 million to its top-line. However, its adjusted gross margin came in at 36.5%, up from 33.6% prior year value. SEDG shipped 1.69 Gigawatts (AC) of inverters during the quarter. The company reported a non-GAAP EPS of $0.98, rising 3% year-over-year. Nevertheless, its adjusted EPS remained flat sequentially.
SEDG has lost 11.6% over the past month to close yesterday’s trading session at $256.56. In fact, the stock is down 19.6% so far this year. SEDG is innovating fast, which should drive the company’s future financials. As such, its management expects revenue for the current quarter to be in the $445 million – $465 million range. However, its non-GAAP gross margin is expected to be within the 32% – 34% range, which is lower than its last reported quarter.
SEDG’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SEDG also has a D grade for Growth, Sentiment and Stability. The stock is currently ranked #16 in the 21-stock, F-rated Solar industry.
In total, we rate SEDG on eight different levels. Beyond what we’ve stated above, we have also given SEDG grades for Value, Momentum and Quality. Get all SEDG’s ratings here.
Sunrun Inc. (RUN)
RUN is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy systems in the United States. The company also sells panels and racking, solar leads, and offers battery storage. Notably, RUN became the largest pure-play solar company after acquiring Utah-based Vivint Solar in October last year. As of March 31, RUN had 573,634 customers, including 498,997 subscribers.
On May 19, RUN inked a partnership with Ford Motor (F) to serve as the preferred installer for Ford Intelligent Backup Power, debuting on the all-electric F-150 Lightning. RUN will facilitate easy installation of the 80-amp Ford Charge Station Pro and home integration system, enabling the device to serve as a reliable home backup energy source while also powering households. RUN also expanded its Brightbox rechargeable solar battery system to San Antonio and Miami in February.
For the first quarter (ended March 31, 2021) RUN’s top line improved 59% year-over-year to $334.8 million. Its solar energy systems and product sales revenue came in at $160.2 million, increasing 44% year-over-year. The company generated a net subscriber value of $8,197, resulting in total value generation of $165 million for the quarter. It added 23,556 customers, including 20,087 subscriber additions. The company installed 167.6 megawatts of solar energy capacity during the quarter to take its networked solar energy capacity to 4,052 megawatts. RUN reported a net loss of $0.12 per share, representing a significant improvement from its year-ago loss of $0.23 per share.
Despite these developments, shares of RUN have retreated 34.7% so far this year. Also, the stock has lost 19.2% over the past month to close yesterday’s trading session at $45.32. RUN’s annual recurring revenue from subscribers, as of March 31, was $683 million, while its subscribers’ average contract life remaining was 17.2 years. However, analysts do not expect the company to turn profitable in fiscal 2022.
It’s no surprise that RUN has an overall F rating, which translates to Strong Sell in our POWR Ratings system. RUN has an F grade for Value and Quality also. It is ranked #18 in the Solar industry.
In addition to the POWR Ratings grades we’ve just highlighted, one can see RUN’s ratings for Growth, Sentiment, Momentum and Stability here.
Sunnova Energy International Inc. (NOVA)
NOVA is one of the leading U.S. residential solar and storage service providers. It provides maintenance, monitoring, repairs and replacements, equipment upgrades, on-site power optimization, and diagnostics services. The company operates a fleet of residential solar energy systems with a capacity of approximately 790 megawatts that serve around 116,400 customers.
On April 1, NOVA completed its acquisition of Lennar Corporation’s (LEN) residential solar platform, SunStreet Energy Group, to become its exclusive provider of residential solar and storage service. As part of the transaction, LEN has committed to supporting NOVA’s home-builder customer pipeline and to propelling its customer growth while scaling its business.
In the first quarter (ended March 31, 2021), NOVA’s revenue grew 38.4% year-over-year to $41.28 million, driven by a consistent increase in the number of customers served. Notably, the company added 8,900 customers in the first quarter. Also, its customer principal and interest payments received from solar loans also increased sharply compared to the same period last year. However, the company is still unprofitable. Its operating losses came in at $23.31 million, a significant increase from its $14.31 million year-ago loss. It also reported a $0.31 per share net loss.
Shares of NOVA have lost more than 35% so far this year. Furthermore, the stock has declined 28% over the past month to close yesterday’s trading session at $29.12. NOVA has grown remarkably in recent quarters. As such, analysts anticipate NOVA’s losses to shrink this year and that the company’s EPS will improve 58.1% in the current quarter. However, NOVA has consistently failed to meet consensus EPS estimates and has delivered a negative earnings surprise in each of the trailing four quarters.
NOVA’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. NOVA also has an F grade for Value and Quality. And it is ranked #20 in the Solar industry.
Click here to see the additional POWR Ratings for NOVA (Value, Momentum, Stability and Sentiment).
ReneSola Ltd. (SOL)
SOL is a leading international manufacturer and supplier of solar power products. The company currently owns 172.4 MW of operating projects, of which 148.3 MW is being operated as rooftop projects in China, and 24.1 MW in the United States. The company operates through three segments: Solar Power Project Development, EPC Services, and Electricity Generation Revenue.
On May 4, SOL signed on to a JV agreement with Eiffel Investment Group, with the goal of accelerating the development and financing of SOL’s current and future solar projects. The initial portfolio will consist of 340 MW advanced stage development projects located in Poland, Spain, and France, which both partners will support and develop to the ready-to-build stage. The deal also plans to fund the development of up to 700 MW of solar projects in the next three years across Europe.
In the first-quarter of 2021, SOL reported a 7.6% year-over-year rise in its net revenues to $22.8 million, largely driven by the sale of solar projects in Hungary and Utah. Notably, SOL closed three sales of solar development projects and assets during the quarter. Its energy sales were mostly represented by the 31.4 million KWh generated by its rooftop DG projects in China and the United States. Its non-GAAP EPS for the quarter came in at $0.05, compared to a $0.01 per share year-ago loss.
SOL closed yesterday’s trading session at $8.83, declining more than 40% over the past three months. In fact, the stock has lost 22.8% year-to-date. SOL’s development pipeline is coming on strong, with approximately 6 MW of late-stage projects under construction. Importantly, the company is planning to add an incremental project pipeline in its core markets to reach 2GW by the end of 2021. However, its management expects SOL’s top-line to decline in the current quarter and expects revenue to be in the range of $19 – $22 million. Analysts expect SOL’s revenue and EPS to decline 17.8% and 33.3%, respectively, in the current quarter.
SOL’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The stock has an F Grade for Stability, and a D grade for Value and Quality. SOL is ranked #13 in the Solar industry.
Click here to access additional POWR Ratings for SOL, namely Growth, Sentiment, and Momentum.
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SEDG shares were trading at $259.22 per share on Friday morning, up $2.66 (+1.04%). Year-to-date, SEDG has declined -18.77%, versus a 12.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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