Following Tuesday’s presidential debate, solar stocks witnessed a remarkable surge, fueled by democratic nominee Kamala Harris’ commitment to advancing alternative energy sources.
Despite the appeal of stocks like First Solar FSLR, Sunrun RUN, and Array Technologies ARRY, the Zacks Solar Industry currently ranks in the bottom 43% among over 250 Zacks industries.
As the solar energy sector navigates its early development stages, it faces challenges within a high inflation environment, presenting selected opportunities for prudent investors.
First Solar’s Leading Role
First Solar has spearheaded the recent upsurge in solar stocks, with FSLR surging nearly +15% post-debate as the prominent solar module manufacturer. The company has experienced robust growth, with its stock soaring by +35% this year.
While First Solar currently holds a Zacks Rank #3 (Hold), optimistic projections for substantial top and bottom-line growth in fiscal 2024 and FY25 position it as a compelling long-term investment opportunity.
Image Source: Zacks Investment Research
Sunrun’s Standout Performance
Sunrun, a provider of residential solar energy systems, stands out as the top-rated stock within the Zacks Solar Industry, boasting a Zacks Rank #1 (Strong Buy). Elevated earnings estimates for FY24 and FY25 underscore its path towards profitability.
Image Source: Zacks Investment Research
Moreover, the anticipated expansion of Sunrun’s revenue hints at its future earnings potential, with a 20% sales growth projected in FY25 to reach $2.57 billion. This surge represents a 100% increase from pre-pandemic levels in 2019.
Sunrun’s cash reserve has also exhibited a notable upsurge, rising from $363 million in 2019 to over $1 billion by Q2 2024. Strengthening financial metrics have begun justifying the premium associated with Sunrun’s stock valuation despite its lack of profitability, trading at around $20.
Image Source: Zacks Investment Research
Array Technologies’ Potential Rebound
Array Technologies, known for providing ground mounting systems in solar projects, might be on the brink of a significant rebound. Being profitable and trading at just $6 per share, ARRY stock shows promise.
Although ARRY has dipped from its 52-week high of $26, trading at 9.6X forward earnings, it is projected to witness a rebound with a 49% surge next year in EPS, reaching $1.03 per share.
With a +2% increase in Friday’s trading session, Array Technologies currently holds a Zacks Rank #3 (Hold) and flaunts an “A” Zacks Style Scores grade for Value.
Image Source: Zacks Investment Research
Assessing the Solar Industry’s Performance
Year-to-date, the Zacks Solar Market remains down -16%, significantly underperforming the S&P 500 and Nasdaq’s gains of over +15%. Despite a recent rally, the solar market faces a -4% decline this month, lagging behind broader market indexes.
Image Source: Zacks Investment Research
Closing Remarks
While the recent surge in solar stocks may entice investors, a cautious approach is advised when considering investments in this sector.
Although companies like First Solar, Sunrun, and Array Technologies present compelling prospects, many solar stocks remain exposed to significant downside risks. Recent rate cuts may alleviate pressures arising from inflation, impacting the industry’s growth dynamics.
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