Goldman Sachs Says Buy the Solar Stock Pullback Now: 4 Top Analyst Picks

One industry that received a huge tailwind with the election of President Biden was the solar companies, and with good reason. Even before the Biden administration took office, there had been a push for cleaner energy. While the mandates from the previous administration were far less than are expected from the current one, many of the top solar companies were doing very well.
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In a new research report, Goldman Sachs remains positive on the industry and feels that now may be a good time to buy some of the top solar stocks, after a fair amount of recent selling. The report noted this:

Despite a sharp pullback in solar stocks over the past month (-23% vs. 1% for Russell 2000), we believe there are multiple reasons to remain selectively positive on the group, including:

(1) Solid fundamentals that have momentum to start 2021.
(2) A healthy financing backdrop.
(3) Potential for policy catalysts, particularly in the US.

At the same time, while we would not argue that solar stocks are cheap in absolute terms, we think it’s noteworthy that the average P/E has compressed by ~7 turns across our solar coverage since the beginning of 2021, while earnings estimates have actually been revised higher by about 8% in aggregate. With this in mind, we continue to see significant upside to Buy-rated names across the group (e.g., ~40% on average).

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These four top stocks are rated Buy and are offering outstanding entry points for aggressive growth investors with an eye for value. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Array Technologies

This company sometimes is confused with a biotech with a similar name that Pfizer bought in 2019. Array Technologies Inc. (NASDAQ: ARRY) provides solar tracking solutions and services for utility-scale projects. Its products include DuraTrack HZ v3, a single-axis solar tracking system, and SmarTrack, a machine learning software that automatically adjusts module angles in response to weather and site conditions.

This stock had a red-hot initial public offering last fall. Shares charged out of the gate, as the first trade was 34% above where the upsized IPO was priced. A total of 47.5 million shares were sold in the offering, as the maker of ground-mounting systems used in solar energy projects sold 7 million shares to raise $154 million and a selling shareholder sold 40.5 million shares.
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Recently, Array Technologies priced an upsized secondary offering by a parent entity of the company controlled by Oaktree Capital of 31,875,000 shares of common stock at a price to the public of $35 per share. The deal and the added volume drove the stock price down, offering investors the best entry level since the IPO.

Goldman Sachs team set a $47 price target on the shares, while the Wall Street consensus target is $46.17. Tuesday’s closing trade for Array Technologies stock was at $29.11 a share, which was down almost 3% for the day.
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Enphase Energy

Shares of this company have exploded higher, and the recent pullback is perfect for investors looking to step in. Enphase Energy Inc. (NASDAQ: ENPH | ENPH Price Prediction) designs, develops, manufactures and sells home energy solutions for the solar photovoltaic industry in the United States and internationally.

The company offers semiconductor-based microinverter, which converts energy at the individual solar module level and combines with its proprietary networking and software technologies to provide energy monitoring and control services. It also offers AC battery storage systems, Envoy communications gateway and Enlighten cloud-based monitoring service, as well as other accessories.

Enphase Energy sells its solutions to solar distributors and directly to large installers, original equipment manufacturers, strategic partners and homeowners, as well as directly to the do-it-yourself market through its legacy product upgrade program or online store.

Goldman Sachs continues to love the secular growth story on battery storage and the European exposure, and the firm has a massive $264 price target. The posted consensus target is significantly lower at $214, and Enphase Energy stock retreated more than 3% on Tuesday to close at $155.97 per share.
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Sunnova

This very solid idea is on the Goldman Sachs Conviction List of top stocks to buy. Sunnova Energy International Inc. (NYSE: NOVA) provides residential solar and energy storage services in the United States.

The company offers operations and maintenance, monitoring, repairs and replacements, equipment upgrades, on-site power optimization and diagnostics services. It operates a fleet of residential solar energy systems with a generation capacity of approximately 572 megawatts serving approximately 80,000 customers.
The analysts reiterated the firm’s Buy rating recently and pointed to the company’s solid end to 2020. Sunnova increased its 2021 growth outlook, which also appears to be spilling over into improved visibility even into 2022. The company cited a target to grow adjusted EBITDA and principal and interest payments by 75% year over year in 2022, implying approximately $300 million on this very important metric.

The $68 Goldman Sachs price target, compares to the $58.50 consensus target. Sunnova Energy stock closed at $35.68 on Tuesday, which was down over 3% for the day.
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Sunrun

The analysts believe this top company is gaining market share and is an emerging growth story. Sunrun Inc. (NASDAQ: RUN) finances, installs and services solar power arrays on customer premises. The company acquires customers directly, as well as through a partnership model.

The majority of the company’s solar installations are leased from Sunrun by its customers, with a smaller portion of the business comprised of systems sold to customers outright.

With significant fiscal 2021 storage inflection expected, management has noted that 15,000 storage installations may be understating demand, especially compared to 16,000 year-end 2020 cumulative storage installs. While storage remains supply-constrained, management has pointed out that the growth guidance would have been higher than 20% to 25% otherwise given overall solar and storage demand.

Goldman Sachs has set its price target at $77. The consensus target is higher at $81.18. Sunrun stock pulled back just over 2% on Tuesday and closed at $56.15 a share.
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All these top stocks backed up in the first quarter as traders swooped in to grab profits from election-based trades. In addition, the industry also was dented by recent concern over interest rate increases. Clearly, with Democrats now firmly in power, the focus on clean energy will remain at the forefront, and these top stocks are the way to play the potential.