The last thing we needed as we start to enter the home stretch for 2020 was a disputed election, but here it is. Given that this year has been a start-to-finish nightmare, it probably should come as no surprise. Wall Street and investors see the potential for Joe Biden to hold on and become the 46th president as a huge positive for certain sectors. One at the top of the list is clean energy.
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Solar energy is one main clean energy product from the sector. In a new report, Goldman Sachs feels that the change in administration is huge for the top companies. The report noted this:
Taking into consideration President-elect Joe Biden’s proposed clean energy policies, we now base case the potential for more accommodative policy and faster solar volume growth in coming years in our valuation frameworks and raise select price targets across the group, particularly for names with leverage to the US with all of our Buy-rated names showing double-digit potential price appreciation to our new 12-month price targets.
Five stocks are rated Buy at Goldman Sachs, and one is the newest member of the firm’s Conviction List. However, 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 is being 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 recent red-hot initial public offering. 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.
Goldman Sachs has a $50 price target on the shares, while the Wall Street consensus target is $44.29, and Array Technologies stock fell almost 6% on Tuesday to close at $39.70.
Canadian Solar
Based in the Great White North, this respected company is a solid play for growth investors who may be a touch more conservative. Canadian Solar Inc. (NASDAQ: CSIQ) designs, develops, manufactures and sells solar ingots, wafers, cells, modules and other solar power products. It operates through two segments.
Its Module and System Solutions segment engages in the design, development, manufacture and sale of a range of solar power products, including standard solar modules, specialty solar products, and solar system kits that are ready-to-install packages, comprising inverters, racking systems and other accessories.
The Energy segment engages in the development and sale of solar power projects and operation of solar power plants and the sale of electricity. As of January 31, 2020, this segment had a fleet of solar power plants in operation with an aggregate capacity of approximately 880.2 megawatt peak. The company’s primary customers include distributors, system integrators, project developers and installers/EPC companies.
Goldman Sachs raised its price target and noted this:
Our 12-month target moves higher as we update assumptions in our project pricing model for our sum-of-the-parts analysis to reflect updated disclosures from the company around its Japanese assets and increase multiples to reflect recent increases in comparison multiples.
The Goldman Sachs target was lifted from $42 to $44. The consensus target is $40, and the last Canadian Solar stock trade on Tuesday came in at $38.93.
First Solar
This stock recently was removed from the firm’s Conviction List but remains a top solar play for 2021. First Solar Inc. (NASDAQ: FSLR) is the largest vertically integrated solar manufacturer in the United States. The company uses a specialized cadmium telluride (thin film) based panel, which is different from most other panels, which are silicon based. First Solar engages in manufacturing and has planned 6 gigawatts of capacity by 2020, with revenues increasingly coming from module sales.
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First Solar also develops and sells downstream solar projects and has created some of the largest solar installations in the country. While there have been some trade-related concerns, solid earnings should keep a nice tailwind behind the shares. With systems business and module guidance very achievable, this is perhaps the strongest player in the industry.
The $101 Goldman Sachs price target compares with the $84.83 consensus target. First Solar stock was last seen trading at $80.75, down over 6% on the day.
Sunnova
This is the newest addition to the Goldman Sachs Conviction List. 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 said this when adding the stock to the Conviction List:
Our 12-mo target moves higher reflecting an increase in our target EBITDA multiple to 27X (vs. 25X) as we factor in the potential for higher growth and recent increases in comp multiples. Our valuation methodology remains unchanged – a 50/50 weighting of (1) our adjusted. EBITDA valuation and (2) our NAV valuation. Key risks include slower MW growth, policy shifts (net metering), and dealer concentration.
The $38 price target at Goldman Sachs was raised to $44. The consensus target is $37.50, and Sunnova Energy International stock fell 3% on Tuesday and closed at $31.51.
SunPower
This stock has been running hard but remains among the Goldman Sachs favorites. SunPower Corp. (NASDAQ: SPWR) designs, manufactures and delivers solar systems to residential, commercial and power plant customers worldwide. The company provides solar power components, including panels and other system components. French energy giant Total owns a 57% stake in the company.
The company also offers operations and maintenance services, including remote monitoring, and preventative and corrective maintenance services, as well as rapid-response outage restoration services. Further, it leases solar power systems to residential customers and sells inverters manufactured by third parties.
SunPower serves investors, financial institutions, project developers, electric utilities, independent power producers, commercial and governmental entities, production home builders, residential owners and small commercial building owners.
Goldman Sachs has set a $23 price target, well above the $16.24 consensus target. SunPower stock closed at $18.56 a share.
All these top companies backed up some in Tuesday trading as profit-takers swooped in to grab profits from election-outcome-based trades. While they may take a dent near term, a final decision that goes Biden’s way will be a clear positive for the sector and will remain so during the administration. It may make sense to scale buy shares, in case the selling does not dissipate for a while.
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