The U.S. Senate recently passed historic legislation aimed at limiting climate change. Called the “Inflation Reduction Act,” the legislation, which is 755-pages long, includes more than $300 billion to finance clean energy projects, including incentives for farmers and ranchers to reduce methane emissions; an extension of a electric vehicle tax credit; and the launch of a National Climate Bank that will make investments in clean energy technologies. These provisions will be very positive for solar stocks.
While the legislation is being hailed as a major victory for President Joe Biden and his Democratic party just months before the midterm Congressional elections, it is also a huge win for companies involved in alternative sources of energy, chief among them solar-power companies. Solar companies are expected to directly benefit from the new climate provisions in the form of tax credits and subsidies for new technologies and projects.
For this reason, solar stocks have been ripping higher. They were trending upwards in the lead-up to the bill’s passage and took off like a rocket once the Senate voted 51-50 to pass the legislation and send it to President Biden for his signature.
Here are three solar stocks to buy now ahead of their additional gains from the IRA.
| RUN | Sunrun | $33.05 |
| FSLR | First Solar | $115.30 |
| SPWR | Sunpower | $24.85 |
Sunrun (RUN)
San Francisco-based Sunrun (NASDAQ:RUN) is one of the leading solar companies in the U.S. with annual sales of $1.61 billion. The company also has partnerships with several leading retailers, including Costco (NASDAQ:COST) and Home Depot (NYSE:HD). These alliances allow it to market its installation services directly to customers in the retailers’ stores nationwide.
The stock has been an outperformer this year even before the new legislation was passed by the U.S. Senate. In the past six months, RUN stock has soared 60% and currently trades at $33.50 per share. That compares with a loss of 12% for the benchmark S&P 500 index so far this year.
The outperformance can be attributed to anticipation related to IRA and also to Sunrun posting better-than-expected earnings.
At the start of August, the still-unprofitable company reported a Q2 loss of $12.4 million, or six cents per share. That was much better than the loss of 20 cents per share that analysts, on average, had forecast.
Sunrun’s Q2 revenue came in at $584.6 million, also above analysts’ average estimate of $485 million in revenue. Perhaps most impressively, Sunrun added 34,403 new customers in Q2, bringing its total number of customers to 724,177, up 21% from the same period a year earlier.
First Solar (FSLR)
Perhaps the only major solar stock that has performed better than Sunrun this year is First Solar (NASDAQ:FSLR).
The Tempe, Arizona-based company’s shares are up 71% in the past six months and are currently changing hands at $115. The stock has nearly doubled since mid-July when it became more likely that the climate-change provisions were going to be passed into law.
The new bill is sure to benefit First Solar, which is the second largest manufacturer of solar panels in the world. Publicly traded since 2006, the company is routinely named the top solar contractor within the U.S.
Despite the strong run of FSLR stock in recent weeks, analysts see more gains for it ahead. JPMorgan Chase (NYSE:JPM) recently issued a note to clients urging them to buy First Solar stock, saying that the new climate provisions could lead the share price to rise a further 20%.
KeyBanc Capital Markets raised its price target on the stock to $145 a share. The firm believes that the company could benefit from $400 million of tax credits and should achieve a 20% gross margin by 2025 on $3 billion of sales once the new climate legislation becomes law.
SunPower (SPWR)
As with the other companies on this list, the shares of San Jose, California-based SunPower (NASDAQ:SPWR) have been running hot lately. In the last six months, SPWR stock has gained 67% to trade at $25.12 per share.
The company focuses on solar energy generation and battery energy storage for residential customers rather than solar panels. Founded in 1985 by an electrical engineering professor at Stanford University, the company has been publicly traded since 2005 and has earned a reputation for being innovative and having cutting-edge solar technologies.
In addition to benefitting from the passage of the climate provisions, SunPower has also gotten a lift in recent weeks from a strong earnings print.
In early August, the company announced Q2 earnings of three cents a share on revenues of $414 million. That was much better than analysts, on average, had expected. Analysts, on average, had forecast that SunPower would report earnings of two cents per share on revenue of $362 million.
SunPower said that it had added a record 19,700 customers in Q2, up 51% from the amount it had added a year earlier. It also announced a new strategic partnership with privately-owned home goods retailer Ikea to reach new customers throughout the U.S.
On the date of publication, Joel Baglole 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.
