If there was any piece of legislation in the history of the United States that was a huge boost for the green energy contingent it was the so-called Inflation Reduction Act (IRA). Under the guise of reducing inflation by spending hundreds of millions of dollars, most provisions of the act became effective on January 1, 2023. Among a plethora of potential initiatives, the act provides funding for residential energy efficiency and electrification. For households with low or moderate income, it funds point-of-sale rebates for qualified high-efficiency electric appliances, such as heat pumps for space heating and cooling.
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While it may be hard to see how any inflation reduction will come from this, and many are still waiting on the Treasury to issue guidance on just exactly what all of the conditions and terms will be, Goldman Sachs sees big benefits for some top companies in the solar industry. Five top stocks the firm rates at Buy are highlighted in a new research report. It is important, though, to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Array Technologies

This company beat fourth-quarter earnings and revenue estimates and will report first-quarter results in early May. Array Technologies Inc. (NASDAQ: ARRY) manufactures and sells ground-mounting tracking systems used in solar energy projects in the United States, Spain, Brazil, Australia and elsewhere.

Its products include the following:

• DuraTrack HZ v3 is a single-axis tracker.
• Array STI H250 delivers a lower levelized cost of energy with a tracker system.
• Array OmniTrack and SmarTrack are a software product that uses site-specific historical weather and energy production data in combination with machine learning algorithms to identify the optimal position for a solar array in real time to enhance its energy production.

The analysts noted this when discussing the IRA impact on the company:

While we do not expect the company to quantify the IRA impact to F2023 guidance on the 1Q earnings call, we look for more updates on the progress of supplier and customer discussions on capturing higher pricing/lower input prices, as well as on the potential role of the transferability of the credits (PTC). We also believe there is potential for an increase to average selling prices toward the back half of the year, depending on domestic content guidance, and look for any details on new contract negotiations that might enable Array to capture a price premium on more fully US spec-ed trackers.

The Goldman Sachs target price on Array Technologies stock is $27, near the consensus target of $27.11. The shares closed on Wednesday at $21.03.

This red-hot company may be poised to deliver a first-quarter earnings beat. Enphase Energy Inc. (NASDAQ: ENPH) designs, develops, manufactures and sells home energy solutions for the solar photovoltaic industry in the United States and internationally.
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The company offers semiconductor-based microinverters, which convert energy at the individual solar module level and combine with its proprietary networking and software technologies to provide energy monitoring and control services. It also offers AC battery storage systems; Envoy communications gateway; Enlighten cloud-based monitoring service; an IQ gateway; IQ batteries; the cloud-based Enlighten monitoring service; storage solutions; electric vehicle charging solutions; and design, proposal, permitting and lead-generation services.

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 noted this when discussing the potential IRA benefits for the company:

Enphase estimated that the net benefit of microinverter manufacturing tax credits would be roughly $20-$30 per microinverter, or roughly $300 million-$400 million of annualized net benefit based on our estimation. US manufacturing will begin in 2Q23, with more lines becoming operational in 3Q23. Therefore, the company may not begin to materially realize manufacturing credits until 3Q23, in which case the company may not be in a position to provide financial guidance on IRA credits until the 2Q23 earnings call.

Goldman Sachs has a $295 price target, and the consensus target for Enphase Energy stock is $289.83. Wednesday’s closing share price was $224.27.

First Solar

While maybe not poised to beat results this quarter, this is one of the best-positioned companies in the industry and could supply a full-year earnings beat. First Solar Inc. (NASDAQ: FSLR) provides photovoltaic (PV) solar energy solutions in the United States, Canada, France, Japan, India and elsewhere.
First Solar also engages in manufacturing PV solar thin film semiconductor module technology. It serves developers and operators of systems, utilities, independent power producers, commercial and industrial companies, and other system owners.
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The Goldman Sachs report noted this about potential catalysts:

We also look for more clarity around the timing of an Analyst Day, which we expect to provide a multi-year framework for growth/tech/earnings and serve as a catalyst; an announcement around new manufacturing capacity in the US (likely in AL or the Southwest US, in our view) is also a potential upside catalyst moving through the next quarter or two.

Goldman Sachs has set its target price at $260, well above the $217.49 consensus target. First Solar stock closed on Wednesday at $218.19.

SolarEdge Technologies

This top solar company not only could beat earnings expectations for the quarter, but it is on the Goldman Sachs Conviction List of top stock ideas. SolarEdge Technologies Inc. (NASDAQ: SEDG) designs, develops and sells direct current (DC) optimized inverter systems for solar PV installations worldwide.

The company offers inverters, power optimizers, communication devices and smart energy management solutions used in residential, commercial and small utility-scale solar installations. Its cloud-based monitoring platform collects and processes information from the power optimizers and inverters, as well as monitors and manages the solar PV system.

SolarEdge also provides residential, commercial and large-scale PV energy storage and backup, electric vehicle charging, and home energy management solutions, as well as grid services; e-Mobility, automation machines, and lithium-ion cells and batteries, and virtual power plants.

In addition, the company offers pre-sales support, ongoing training and technical support and after-installation services. The company sells its products to the providers of solar PV systems and to solar installers and distributors, electrical equipment wholesalers and PV module manufacturers, as well as engineering, procurement and construction firms.

The analyst noted this about the possibility for a beat and raise for the quarter:

We believe SolarEdge is set up for another beat and raise on the back of continued volume strength in Europe, where the company is also benefiting from a margin rebound on the back of better pricing and euro FX trends. At the same time, the US business appears to be more stable in the beginning of the year given ongoing demand pull-forward in California, though this is less of a tailwind to the company versus peers given its diversified geographic sales mix.

SolarEdge Technologies has a $420 Goldman Sachs price target. The consensus target is $368.74, and Wednesday’s close was at $314.36.

This stock also could be more of a full-year story, but it offers a very solid entry point at current trading levels. Sunrun Inc. (NASDAQ: RUN) designs, develops, installs, sells, owns and maintains residential solar energy systems in the United States. The company also sells solar energy systems and products, such as panels and racking, and solar leads generated to customers. In addition, the company offers battery storage, along with solar energy systems. Its primary customers are residential homeowners.
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Sunrun markets and sells its products through direct-to-consumer approach across online, retail, mass media, digital media, canvassing, field marketing and referral channels, as well as its partner network.

The analysts noted this about the company’s guidance:

On margins, the company guided to 1Q23 net subscriber value of $10k (at a 6% discount rate) and expects to continue growing net subscriber value throughout 2023. We look for commentary on the quarterly cadence of customer margins and if there may be more pressure in the second half of 2023 assuming a pull back in installation growth. That said, easing component pricing trends, especially for modules, can likely continue to buoy healthy margin expansion throughout the year, in our view.

The Goldman Sachs target price is $27. The consensus target is up at $37.36, but Sunrun stock closed at $19.78 a share on Wednesday.

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Two of these companies stand a solid chance to beat earnings estimates and raise guidance when their first-quarter prints drop. Three more look like top ideas for now and the rest of the year. It may make sense to buy partial positions in front of earnings because, given the earnings-related stress on Wall Street, any company, regardless of sector, will be demolished if they miss estimates, give lousy forward guidance or, worst case, do both.

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