In the past year, the solar industry has experienced a number of macroeconomic catalysts to foment growth and innovation. Last year, Russia’s invasion of Ukraine coupled with the subsequent sanctions imposed on Russian commodities created volatility in both global energy and food prices. To help quell the rally in oil and natural gas prices, governments around the world implemented policies, such as the Inflation Reduction Act, to incentivize the use of renewable energy, including solar energy. Although 2023 sees a slightly different macroeconomic picture with energy prices in the United States now temporarily stabilized, countries and regions will still continue to adopt ambitious targets and policies to accelerate the transition to renewable energy.
According to the International Energy Agency solar photovoltaic (PV) capacity increased by 26% in 2022, reaching 1300 terawatt hours (TWh) globally. The IEA projects that solar PV will account for 22% of global power capacity by 2027. The main drivers of this growth will be the declining costs of solar technology, the increasing competitiveness of solar power compared to fossil fuels, and the rising demand for electricity from emerging markets.
Investors should only be looking at these solar stocks to be prepared for this monumental change.
Sunrun (RUN)
Sunrun (NASDAQ:RUN) is the nation’s leading provider of residential solar, storage and energy services, with over 6.2 gigawatts of networked solar energy capacity. In essence, the company designs develops, and installs residential solar energy systems in the United States.
Sunrun employs a simple yet effective subscription business model that allows consumers to save money on their electricity bills, reduce their carbon footprint, and access backup power during outages. Customers sign what is effectively a power purchase agreement with Sunrun, and the solar company then provides them with access to “predictable” solar energy pricing and effectively shields them from retail electricity prices.
Last year, Sunrun delivered a record $2.3 billion in revenues, which was up 44% year over year. The company also generated record net income of $173 million, representing a net margin of above 7.5%. The company also achieved record levels of net subscriber value, net earning assets, annual recurring revenue, and solar energy capacity installed. In the second quarter of 2023, Sunrun reported revenues of $590.2 million, up 1.0% year over year, and a surprising net income of $55.5 million. Despite missing revenue estimates, Sunrun was able to pull a surprise profit, which displays both the company’s growth and efficiency even in a difficult environment for residential solar. Sunrun’s shares have been beaten up year-to-date, but the company’s resilience should get investors to pay close attention.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) is another pure-play solar energy company. However, SolarEdge specializes in providing inverters and “smart energy” power optimizers for solar systems. The company also develops software and hardware solutions for monitoring and controlling solar energy production and consumption. To complement its solar energy product, SolarEdge has developed a product portfolio that supports smart energy management, including battery storage, electric vehicle chargers, smart meters, and load controller solutions.
Thanks to a generous policy environment, SolarEdge Technologies has been enjoying strong growth in both residential and commercial segments, as well as in international markets such as Europe and Australia. SolarEdge’s YoY revenue growth reached high double-digit figures in almost every year since 2016. However, demand for solar energy in 2023 appears to be softening. As mentioned before, this phenomenon is most likely related to a broader slump in energy prices in the U.S.
This phenomenon is reflected in SolarEdge’s trailing price-to-earnings ratio which is currently trading at 34.0x trailing earnings, well below the 1-year average 96.8x trailing earnings. Thankfully, initiatives to transition to renewable sources of energy are long-term commitments and are not likely to go away, which should make solar stocks like SolarEdge Technologies attractive in these moments of investor hesitation.
NextEra Energy (NEE)
NextEra Energy is one of the world’s largest electric utility companies, serving more than 12 million people across Florida through its subsidiary Florida Power & Light Company. The company also owns NextEra Energy Resources, which is the world’s largest generator of renewable energy from the wind and sun and a world leader in battery storage. Though NextEra maintains a portfolio of electricity generated from natural gas, NextEra Energy is committed to advancing clean energy solutions for its customers and society at large.
The utility giant reported net income of $4.1 billion on a GAAP basis for the full year 2022, up 16% from 2021, and $5.742 billion on an adjusted basis for the same period, up 14% from 2021. The company also achieved record levels of earnings per share growth on both a GAAP and adjusted basis for the full year 2022. 2023 has also translated to a record year for business performance. In the first quarter of 2023, NextEra Energy benefitted tremendously from its solar and wind assets and reported net income of $1.522 billion on a GAAP basis, up 26% year over year, and $1.011 billion on an adjusted basis, up 24% year over year. Second quarter results also came in above Wall Street estimates.
NextEra Energy is at an inflection point in its business and has effectively capitalized on trends toward renewable energy. The company’s share price has not performed well year-to-date, but given the robust growth and profitability metrics, NextEra’s could be in for a turn-over.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
