Renewable energy, specifically solar, may be offering investors a significant opportunity over the next several quarters, according to one key analyst. Several elements are firmly in place for the industry, or at least Oppenheimer believes so.
First, capital availability remains robust, especially given relatively wide spreads versus fixed income instruments with similar risk profiles. The firm believes this is a healthy environment for project businesses. Second, equipment prices are correcting, but in an asymmetrical manner, which should create trading opportunities. Third, additional policy clarity, particularly in China, would help the group, but timing is unclear. The firm believes investors will need to be nimble with this group through the first part of 2017 to generate positive returns.
In terms of the trading strategy, Oppenheimer believes in embracing reverse psychology. Given a growing awareness of price pressure and limited long-focused ownership in the group, it would expect a significant short position into earnings. The firm would not be surprised by a better-than-feared trade for platforms like SunPower Corp. (NASDAQ: SPWR), Canadian Solar Inc. (NASDAQ: CSIQ) and First Solar Inc. (NASDAQ: FSLR). On inverter names like SolarEdge Technologies Inc. (NASDAQ: SEDG) and Enphase Energy Inc. (NASDAQ: ENPH), Oppenheimer believes sentiment is more bullish.
The firm believes downturns in solar typically take two to three quarters to work through. The current correction should work through by early 2017. Oppenheimer would continue to own yield-bearing vehicles, while picking up component original equipment manufacturers (OEMs) with strong project pipelines at depressed levels, select residential finance plays like SunRun Inc. (NASDAQ: RUN), and cash generating inverter OEMs like SolarEdge, once the market has been rationalized and stabilized.
Oppenheimer remains bullish on the prospects for grid-tied energy storage, but note that near-term sales for inverter platforms are likely limited in 2016. Further the firm expects continued growth in pipeline, but it will be watching closely for an acceleration in deal closings, which has been slow to date.
Shares of Canadian Solar were trading up 0.6% at $14.66 on Monday. The stock has a consensus analyst price target of $29.65 and a 52-week trading range of $13.56 to $29.83. Oppenheimer now has a $30 price target, down from $50. Also the firm moved its 2016 earnings per share (EPS) estimate down to $1.58 from $2.66, versus the consensus of $2.14.
First Solar shares were trading down 1% at $47.61, with a consensus price target of $47.62 and a 52-week range of $40.25 to $74.29. Oppenheimer now has a $56 price target, down from $80. Also the firm lowered its 2016 EPS estimate to $3.89 from $4.36, versus the consensus of $4.32.
SunPower traded at $15.19 a share. The consensus price target is $30.73, and the 52-week range is $13.29 to $31.10. Oppenheimer now has a $39 price target, down from $40. Also the firm reduced its 2016 EPS estimate to $1.65 from $1.74, versus the consensus of $1.30.
SolarEdge was trading down 1.8% at $18.45. The consensus price target is $30.64, and the 52-week range is $15.02 to $33.70.
Enphase was down about 2.7% to $1.80, with a consensus price target of $2.58 and a 52-week range of $1.63 to $7.10.