We are deep into the earnings season with more than half of S&P 500 companies having returned their Q3 2022 scorecards. According to FactSet Earnings Insights, the Energy sector is reporting the highest earnings growth of any market sector at 134%. All five sub-industries in the Energy sector are reporting year-over-year earnings growth for the third-quarter, with Oil & Gas Refining & Marketing (269%), Integrated Oil & Gas (140%), Oil & Gas Exploration & Production (105%), and Oil & Gas Equipment & Services (91%) reporting the highest earnings growth. But the clean energy sector is proving to be no laggard, either. Sweeping new federal legislation has pumped new energy into the renewable energy and the solar sector in particular. It’s just over two months since the United States Congress passed the Inflation Reduction Act, hailed as the most important climate legislation in United States history. A major goal of IRA--the largest federal government spending increase on alternative energy in U.S. history--is to strengthen energy independence, reduce dependence on Chinese imports, and reinvigorate the industrial sector.
“The act will immediately spur private investments in production capacity across the solar supply chain, including batteries, helping to create thousands of manufacturing jobs and support our energy independence," Abigail Ross Hopper, president and chief executive of the Solar Energy Industries Association, said in written remarks after the act was passed.
Well, Hopper’s comments are proving to be right on the money. More than $30 billion in new manufacturing investment has already been unveiled since the IRA was enacted, with solar manufacturing, electric vehicle and battery sectors the key beneficiaries. According to the American Clean Power Association, IRA could more than triple clean energy production, cut emissions by 40% by 2030, and create 550,000 clean energy jobs.
A handful of clean energy stocks have reported Q3 earnings. Here’s how they have performed.
- First Solar
YTD Returns: 78.1%
Tempe, Arizona-based First Solar Inc. (NASDAQ: FSLR) provides photovoltaic (PV) solar energy solutions in the United State and internationally. The company disappointed after reporting Q3 revenue of $628.93M (+7.8% Y/Y) missing the Wall Street consensus by $119.04M while Q3 GAAP EPS of -$0.46 missed by $0.28.
However, FSLR stock still managed to sprint to its highest level since April 2011 and adding to gains that followed last week's Q3 results thanks to one metric that impressed the market: bookings.
Guggenheim analyst Joseph Osha said First Solar posted "so-so results but very strong bookings activity," given the company is "in the process of selling out 2026" and "showing a remarkable ability to book business several years into the future at favorable prices." The news regarding First Solar's bookings "can only be described as extraordinary," Osha wrote, after booking 16.6 GW of new business since the company's previous conference call for a total of 43.7 GW YTD.
Osha reiterated his Buy rating on FSLR and raised his price target to a Street-high $233(47.7% upside to current price) from $200 previously. Previously, Guggenheim had this to say after IRA was passed:
"Of all the names in our coverage, we believe First Solar appears positioned to benefit the most from the provisions of the Inflation Reduction Act that passed the Senate. Investors have not fully digested how transformational the IRA could be for FSLR's business," Guggenheim's Joseph Osha has written in a note to clients.
Meanwhile, Needham had picked First Solar and Sunrun Inc. as the biggest beneficiaries in the near-term and added that Enphase Energy Inc. and SolarEdge Inc. (NASDAQ: SEDG) will also benefit from higher government spending and more solar adoption.
- Enphase Energy Inc.
YTD Returns: 60.5%
Enphase Energy Inc. (NASDAQ: ENPH) is a Fremont-California-based company whose primary business is manufacturing semiconductor-based microinverters which convert energy at the individual solar module level. ENHP stock soared 9% on Wednesday after posting strong Q3 results with Wall Street confident that the company can continue to deliver strong growth and margins.
Enphase Energy reported Q3 2022 revenue of $634.7M, up 20% Q/Q and80% Y/Y, a company record for quarterly revenue. On a per-share basis, Enphase posted net income of 80 cents while earnings, adjusted for stock option expense and costs related to mergers and acquisitions, came to $1.25 per share. The company also reported that Q3 GAAP gross margin rose to 42.2% from 41.3% in Q1 and 39.9% in the year-ago quarter.
Enphase issued upside guidance for Q4, forecasting revenues of $680M-$720M vs. $663.5M analyst consensus estimate, with GAAP gross margin of 39%-42% and adjusted gross margin of 40%-43.0%.
Enphase announced plans to open 4-6 manufacturing lines in the U.S. because of the passage of the Inflation Reduction Act, and expects the new lines to open by H2 2023.
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Cowen analyst Jeffrey Osborne raised his stock price target to $335 (13.1% upside to current price) from $278 while maintaining his Outperform rating while J.P. Morgan's Mark Strouse kept his Overweight rating and hiked his PT to $310 from $289, noting gross margin continues to surprise to the upside. Meanwhile KeyBanc's Sophie Karp maintained her Overweight rating and $363 PT, saying Enphase is "one of the best positioned names in our Alternative Energy coverage given the current backdrop."
- NextEra Energy Inc.
YTD Returns: -14.7%
Top U.S. renewable power producer NextEra Energy Inc. (NYSE: NEE) whizzed past estimates on strong demand amid surging power prices. The Juno Beach, Florida-based solar and wind power producer reported Q3 Non-GAAP EPS of $0.85, beating the consensus by $0.05 while revenue of $6.72B (+53.8% Y/Y) beat by $950M.
The company also issued upside guidance: For 2022, NextEra Energy expects adjusted earnings per share to be in the range of $2.80 to $2.90 vs. consensus of $2.88. For 2023 and 2024, NextEra Energy expects adjusted earnings per share to be in the ranges of $2.98 to $3.13 vs. consensus of $3.10 and $3.23 to $3.43 vs. consensus of $3.38.
During the earnings call, NextEra announced that it’s purchasing ~30 facilities that will allow it to become a producer of renewable natural gas, which can also be used to make hydrogen. The company also said it plans to build the first landfill renewable natural gas production facility in the state of Alabama, to be located at a landfill owned and operated by Coffee County.
By Alex Kimani for Oilprice.com
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