The solar industry is cooling, but that’s not fully reflected in the prices of some solar stocks.
Stocks have fallen sharply from their 2021 highs, but many analysts still expect solar panel sales to grow. These forecasts may need to be revised, in light of the dramatic drop in solar activity in the United States recorded by government researchers in the first months of 2022.
There was an 18% drop in domestic shipments of solar modules by manufacturers and importers in January and February, according to the US Energy Information Administration. Import restrictions, California billing changes and rising interest rates appear to be weighing on the industry as solar companies begin their March quarter conference calls. Actions like
(ENPH) – which reports after Tuesday’s close – and
(SEDG) are still trading at premium multiples.
Barrons followed the disruption of solar imports, as the United States imposes tariffs and human rights sanctions against Chinese manufacturers who dominate global production of silicon photovoltaic cells. Next month, the US Commerce Department is expected to decide whether those tariffs have been circumvented by the assembly of solar modules in places like Vietnam and Malaysia, says analyst Gordon Johnson of GLJ Research.
The California Public Utilities Commission surprised the solar industry at the end of 2021, proposing grid connection fees for solar installations. Florida may also reduce its benefits for solar homes.
According to the EIA, volumes had exploded over the past two years, growing 25% in 2020 and then 29% in 2021, when measured by total kilowatts shipped. Even the seasonally slow months of January and February saw year-over-year gains last year, of 15% and 27%, respectively.
This year is different. Shipping volumes fell 12% in January 2022, then 25% in February. The EIA says its numbers capture 90% of US activity.
Solar stocks fell. the
Invesco Solar ETF
(ticker: TAN) is down a third since October. But Wall Street forecasts compiled by
set of facts
still predict revenue growth in 2022 across the industry, from component manufacturers to installers.
Solar Module Suppliers
(JKS) are trading for fractions of their estimated 2022 sales and less than 13 times their earnings. Rooftop Financier Shares
(RUN) have fallen from $59 to $20, over the past six months, to 2.5 times this year’s sales. Fitter
Energy International (
) fell from $44 to $17 over the same period, but still reached five times 2022 sales. Neither Sunrun nor Sunnova are expected to post profits this year.
A solar installation requires a lot of hardware in addition to photovoltaic panels, so companies that make such things might expect to see some correlation between panel volumes and their revenue. The panel positioning specialist stock
has slumped since November, and at $7 is 13 times the 2022 earnings forecast. But installation hardware provider
Shoals Technologies Group
(SHLS) is still targeting 28x earnings and six times sales, despite falling more than 70% since November.
Two solar stocks remained at high earnings multiples, even after recent declines. These are Enphase and SolarEdge, which provide the sophisticated electronics needed to power the day-to-day electrical wiring of a solar installation. Driven by innovative products and industry growth in 2021, Enphase increased sales by 79% last year, while SolarEdge sales increased by 35%.
The consensus forecast predicts that Enphase will achieve 45% growth in sales and 33% in profits in 2022. SolarEdge is expected to increase sales by 48% and profits by 63%. Both stocks are trading at around 50 times this year’s expected earnings.
Electronic components from both companies are in demand and installers may feel pressured to preload their orders, allowing Enphase and SolarEdge to meet March quarter expectations even as industry activity weakens this year.
Enphase, SolarEdge and most of the other companies in this article did not respond to requests for comment. Sunnova said it would discuss industry volumes during its report on Wednesday.
If the volume declines reported by the EIA continue throughout the year, even Enphase and SolarEdge could struggle to meet Wall Street expectations for nearly 50% growth in 2022.
Email Bill Alpert at [email protected]