It has been more than interesting times in the world of power and energy during a volatile stock market late in 2018. Oil was surging for much of 2018, but that faded rapidly. Natural gas had been shining bright for a while too. But what about solar power? It turns out that a more friendly administration for the coal sector is not killing solar. And there are some views that solar could get some reinvigorated demand in 2019 and beyond.
Credit Suisse has issued an alternative energy outlook for 2019. It should be easy to understand what the bias is here when you see the title of the report: “Solar’s Shine Brightens.”
24/7 Wall St. has pulled the solar companies with Outperform ratings and upside to the 2019 price targets for a reference. As a reminder, Credit Suisse often has Outperform ratings based on how companies should do against their peers and sectors rather than outright outperformance against the S&P 500 or other stock market yardsticks. We also have included consensus estimates from Thomson Reuters for comparison.
Credit Suisse’s Michael Weinstein and team see a 2018 demand dip in megawatts (MW) being followed by a 2019 recovery. The firm’s global solar demand and supply forecasts are unchanged, as follows: solar demand declines to 80 gigawatts (GW) in 2018, down 16 GW (17%) from 2017, then grows to 94 GW in 2019 and ultimately sees global solar demand growing to 152 GW by 2022.
Before universally expecting that Credit Suisse loves all aspects of solar (or alternative energy for that matter), note that the report indicates how it continues to prefer project developers over equipment manufacturers:
2019 is shaping up to be an increasingly positive year for renewable project developers that benefit from lower module prices (tapering import tariff in the US and supply glut through 2020), compressing financing spreads, U.S. tax credit extension that can be secured through 2023 by investments in 2019, California’s rooftop mandate starting 2020 that expands the residential market, faster than expected decline in battery storage costs that accelerates renewable adoption as the cheapest cost of electricity globally, a Democratic party in the House supportive of pro-renewable policies (tax credit extension, national renewable portfolio standard), favorable state renewable policies, popular support for renewables among end-consumers and corporates.
The first name that is liked is residential solar developer Sunrun Inc. (NASDAQ: RUN), with an Outperform rating. Its leasing model is expected to help capture market share in an underpenetrated market, with growing cash generation and a favorable project financing environment. After shares fell over 4% to $12.50 on Tuesday, Credit Suisse’s target of $23 compares with the consensus target price of $16.78.
Credit Suisse also mentioned that it likes NextEra Energy Inc. (NYSE: NEE) and NextEra Energy Partners L.P. (NYSE: NEP). The report calls them out as the best-in-class renewable developer and yieldco in the United States. NextEra Energy Partners has a $49 target price, while shares were trading at $42.50 on last look, and compared with the $49.77 consensus target.
Azure Power Global Ltd. (NASDAQ: AZRE) is rated as Outperform, and it is said to benefit from India solar strategy and contracted growth. Its $22 target compares with a current $9.95 share price, but the consensus price target was even higher.
While Credit Suisse’s team says it is not a big fan of solar cell and module manufacturing amid a supply glut, the group does have an Outperform rating on SunPower Corp. (NASDAQ: SPWR) due to its focus on growing U.S. residential and commercial solar business. SunPower’s price target of $10 compares with a current price of $5.79.
Another player named after SunPower was Daqo New Energy Corp. (NYSE: DQ) that is covered in Asia. Daqo is said to be the lowest-cost producer in the commoditized solar manufacturing space. Credit Suisse has a $58 target on Daqo, more than double its current $24.95 price. The consensus analyst target was around $60.
And in the “there’s an ETF for that too” strategy, the Invesco Solar ETF (NYSE: TAN) was indicated up just two cents at $19.61 on Tuesday. It has a 52-week range of $17.47 to $27.07.
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