After succumbing to one of the worst sector performances last year, a sharp rebound on Wednesday has market onlookers asking the same question: why are solar stocks up today? Investors can primarily thank Enphase Energy (NASDAQ:ENPH) and its latest fourth-quarter earnings report. While the print itself wasn’t clean, management’s positive forecast helped invigorate peers SolarEdge Technologies (NASDAQ:SEDG) and First Solar (NASDAQ:FSLR).
According to a Seeking Alpha report, Enphase’s Q4 net income landed at $21 million, translating to 15 cents per share. In comparison, the company posted earnings of $154 million or $1.06 per share in the year-ago quarter. Further, the top line wasn’t any better, mustering sales of $302.6 million or a 58% year-over-year decline.
As if that wasn’t ugly enough, management also disclosed that Q4 revenues in Europe cratered about 70% quarter-to-quarter as it reduced shipments to manage rising inventory levels at distribution partners. Still, the key takeaway — and the answer to the question: Why are solar stocks up today? — centers on forward expectations. Essentially, demand and margins for Enphase’s batteries and microinverters should improve throughout 2024.
“We think Q1 could be the bottom quarter,” CEO Badri Kothandaraman said during the company’s post-earnings conference call. With Europe showing signs of recovery and expectations for states (not including California) to bounce back quickly, inventory levels could normalize, and demand could swing northward by the end of Q2.
Why Are Solar Stocks Up Today? The Worst May be Over.
Fundamentally, besides Enphase’s positive projections lifting SolarEdge, First Solar and others, the other catalyst is a growing belief that the worst is behind the sector.
In 2023, the 10-year real interest rate shot up over 56% against the prior year’s average. During the same time, inflation remained largely elevated while showing some later signs of improvement. Therefore, both consumers and businesses suffered as cost-reduction protocols took greater precedence. Also, policy-related factors such as California’s reduction of compensation paid to households for excess solar-generated electricity didn’t help matters.
However, it’s important not to lose sight of the fact that solar represents the fastest-growing energy source in the U.S. Moreover, Grand View Research points out that the global solar energy systems market reached a valuation of $160.3 billion in 2021. Further, analysts anticipate that the space could expand at a compound annual growth rate (CAGR) of 15.7% from 2022 to 2030.
By the forecast period’s endpoint, sector revenue could soar to $607.8 billion. Thus, solar stocks arguably represent a compelling deal amid the broader red ink.
Finally, political developments could help the space. For instance, many analysts remain optimistic about clean energy ideas as they anticipate that the Inflation Reduction Act will boost sector-related projects over the next several years.
Why It Matters
At the moment, ENPH carries a moderate buy consensus view among Wall Street analysts, while First Solar shares win the sentiment game with a strong buy assessment. However, experts are pensive about SolarEdge, which has a consensus view of hold along with four individual sell ratings.
On the date of publication, Josh Enomoto 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.
