Solar stocks have been popping recently and for good reason. According to the International Energy Agency, in the next 10 years solar output will create a surge in the renewable power supply.
A report by Wood Mackenzie also estimates that solar energy will become the cheapest form of U.S. power by fiscal year 2030.
Given these optimistic projections, solar stocks are likely to be in focus in the coming years. More importantly, if solar output grows at a robust pace in the coming decade, it’s likely that solar stocks will be portfolio catalysts.
With President Joe Biden assuming office, solar stocks have already witnessed sharp moves in the recent past. For some stocks, buying on corrections is a good idea, but others are still attractively valued.
Let’s discuss four solar stocks that are likely to benefit from the global push towards renewable energy sources.
- Azure Power Global (NYSE:AZRE)
- Maxeon Solar Technologies (NASDAQ:MAXN)
- Canadian Solar (NASDAQ:CSIQ)
- First Solar (NASDAQ:FSLR)
4 Solar Stocks Energizing the Market: Azure Power Global (AZRE)
AZRE stock has surged by 78% in the last six months and is among the top solar stocks to consider. The company is a manufacturer and operator of solar plants in India.
As of September 2020, India had 38 gigawatts in renewable energy capacity. The plan is to increase the renewable capacity to 450gw by fiscal year 2030. This presents a big opportunity for Azure Power. While the focus has been on solar stocks in the United States, the company provides exposure to emerging markets.
In terms of size, Azure Power has one of the largest solar portfolios in India. Currently, 1,834 megawatts is operational with 1,281mw under construction. In addition, the company has a committed pipeline of 4,000MW.
Given this pipeline, I expect the company’s revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) growth to remain robust in the next few years.
From a financial perspective, the company reported net-debt-to-adjusted-EBITDA of 5.9 as of September 2020. I am not worried about high leverage. The company is already reporting strong EBITDA growth coupled with positive operating cash flows. As more projects are operational, I expect leverage to decline.
Overall, AZRE stock is worth considering at current levels. Given the push for renewables in India, the company is likely to deliver strong growth in the next decade.
Maxeon Solar Technologies (MAXN)
MAXN stock has been surging in the current year with returns of 94%. It makes sense to wait for some correction after a big rally. The stock is worth accumulating on corrections for the long-term.
Maxeon Solar is a spin-off from SunPower Corporation (NASDAQ:SPWR). Post-spin-off, the company’s major shareholders are Total (NYSE:TOT) and Tianjin Zhonghuan Semiconductor. With strong financial backing, the company is well-positioned for aggressive growth.
Maxeon Solar has a presence in more than 100 global markets. The company also has a multi-year U.S. supply agreement with SunPower Corporation. Besides the sale of power panels to residential and commercial customers, the company is a leader in solar power plants.
Currently, the company has 5gw of SunPower panels installed across six continents and has more than 900 solar patents. Innovation is a big part of Maxeon’s plan.
It’s worth noting that the company is looking to move beyond panels and make inroads in the storage and services segment. This is one of the key growth triggers. Maxeon is targeting top-line growth in excess of 20% in the next few years.
Overall, MAXN stock is among the under-followed names among solar stocks. The stock has skyrocketed in the recent past. A 10% to 15% correction from current levels would be a good entry point.
Solar Stocks to Buy: Canadian Solar (CSIQ)
CSIQ stock has also moved sharply higher by 139% in the last six months. The stock currently trades at $61. Even after the big rally, Citi remains bullish on the stock with a price target of $71. I agree with this view. CSIQ stock still trades at attractive levels.
To underscore my point, the stock currently trades at a price-to-earnings ratio of 26.48. In the next five years, Canadian Solar’s average annual earnings growth is likely at 32.0%. Therefore, the stock trades at a price-earnings-to-growth ratio of less than one. That implies that the stock is undervalued.
Canadian Solar manufactures solar modules and provides systems solutions. In the energy business, the company has 16gw of project pipeline with 500mw of projects in operation. With a presence in 23 countries, the company’s project pipeline is likely to swell in the coming years.
It’s also worth noting that for the last year, the company reported shipments of 11.3gw. For the current year, the company’s shipment is likely to accelerate to 18-20gw. This is one of the reasons for the stock surge in the recent past.
From a financial perspective, the company has deleveraged in the last few years. This has increased the financial flexibility. As EBITDA and cash flow accelerate, Canadian Solar is well-positioned for shareholder value creation.
First Solar (FSLR)
FSLR stock is another attractive name among solar stocks that’s worth considering on dips. Recently, UBS downgraded the share from “buy” to “neutral.” However, the share price target was raised from $95 to $110. Currently, First Solar trades at $100. Given the growth outlook, the stock remains attractive for the long-term and worth accumulating on dips.
In terms of positives, the company has 12.2gw in module shipment backlog. This provides clear revenue and cash flow visibility for the coming quarters. For the current year, First Solar has 6.7gw of contracted deliveries. It also has potential booking opportunities of 8.3gw, which is likely to boost the order book for FY2022 and beyond.
It’s also worth noting that for Q3 2020, First Solar reported capacity utilization averaging over 100% at all factories. With cash and equivalents of $1.6 billion, the company has ample financial resources for capacity expansion.
Overall, the company has strong fundamentals and a steady growth outlook. With positive industry tailwinds, the stock is worth keeping on the radar.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored more than 1,500 stock specific articles with focus on the technology, energy and commodities sector.