The Sun Is Shining On Solar Stocks This Summer

After struggling for weeks trying to work out details of how to pay for the legislation, a bipartisan group of lawmakers is reportedly close to finishing their behind-the-scenes negotiations and unveil a $1.2T infrastructure bill. The bill includes $550B in new spending, with analysts generally bullish about its chances of passing in the Senate, though its fate in the House remains uncertain.

The newest issue of Barron's has analyzed several infrastructure plays that could benefit from the new federal spending with the likes of Caterpillar (NYSE:CAT), Deere (NYSE:DE), United Rentals (NYSE:URI), Vulcan Materials (NYSE:VMC), Martin Marietta Materials (NYSE:MLM), and Terex (NYSE:TEX) jumping after the latest development.

Unfortunately, the solar sector remains rather muted, with the Invesco Solar Portfolio ETF (NYSEARCA:TAN) up a mere 0.74% on Monday's pre-market session. After a monstrous 2020, TAN has been a notable laggard in the current year, having lost 16.7% in the year-to-date as the sector continues to struggle with rising costs and supply chain constraints.

On a brighter note, several leading solar names have just returned their second-quarter scorecards--and so far, so good.

Another big development: the Biden administration will soon launch a tool that allows instant permitting of rooftop solar installations, a major pain point for solar companies.The Department of Energy says the Solar Automated Permit Processing platform will become a standard portal for local governments to automatically process permit applications, rather than the current typical time over a week or more.

Here's how solar companies have performed during the ongoing earnings season.

#1. First Solar

First Solar (NASDAQ:FSLR), the largest solar manufacturer in America and the third-largest in the world, has just posted impressive second-quarter results. First Solar has reported Q2 GAAP EPS of $0.77, topping Wall Street's consensus by $0.23 while revenue of $629M (-2.1% Y/Y) beat by $8.55M. For the full year 2021, the company says it expects EPS of $4.0-$4.6 vs. a consensus of $4.04, on revenues of $2.875B-$3.1B vs. $2.93B consensus.

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First Solar manufactures solar panels, photovoltaic power plants, and related services, including construction, maintenance, and recycling of solar products. The Tempe, Arizona-based company employs thin-film semiconductor technology to achieve enhanced efficiency and sustainability in its solar modules. 

First Solar is one of the companies expected to benefit after the Biden administration was banned imports of polysilicon from Xinjiang, China, a region responsible for supplying ~45% of the world's solar-grade polysilicon, thanks to the company recently committing to building more solar panels in the United States.

Cowen analyst Jeff Osborne says the latest development is "a positive for First Solar" given the company does not use polysilicon and could lead to accelerating orders from utility-scale developers looking to avoid traceability issues in the future.

But that's just part of what makes this solar stock attractive right now.

Last month, First Solar committed to building a new 3GW per year panel factory in Ohio at a cost of $680M. The company says it seeks to "reshore" manufacturing that has moved outside the United States, bolstered by President Biden's ambitious clean energy goals. CEO Mark Widmar says the company's three Ohio plants combined would produce panels that could generate 6 GW of power annually by 2025, more than half of all solar panels the company estimates will be produced annually in the U.S.

But here's another big reason why American solar stocks like First Solar are soaring: Solar tax credits.

While the Biden administration has not named solar yet as a manufacturing priority, it supports extending tax credits for solar panel purchases or requiring federal contractors to purchase more solar panels from U.S. suppliers.

U.S. solar manufacturers are fully in support of the proposed tax credits saying they could boost domestic production of solar panels while also creating tens of thousands of new jobs.

First Solar has backed the tariffs saying they are essential to fight low-priced goods from abroad. However,  industry specialists say tax credits are not enough, and hefty subsidies via tax breaks would be needed in addition to the tariffs, to get the sector really going.

#2. Enphase

Enphase Energy Inc. (NASDAQ:ENPH) is a Fremont, California-based company that designs and manufactures software-driven home energy solutions used in solar generation, home energy storage and web-based monitoring and control. ENPH has reported Q2 non-GAAP EPS of $0.53 beat by $0.11; GAAP EPS of $0.28 beat by $0.02 while revenue of $316.05M (+151.8% Y/Y) beat by $4.82M.

The company reported that it shipped 796 MW DC, or 2,362,401 microinverters, during the quarter.

Enphase forecasts Q3 revenues of $335M-$355M, compared with a Wall Street consensus of $341.8M with non-GAAP gross margin of 38.0%-41.0%.

Despite the stronger than expected earnings, analysts have warned that ongoing semiconductor supply chain constraints are likely to hurt the company's outlook.

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Barclays analyst Moses Sutton says Enphase's update was "uneven" and could lead to another "murky" quarter,  adding that he would buy the stock on weakness.

Evercore ISI's James West says he rates the stock at Outperform and raised his price target to $199 from $184 though he says the company's chip shortage likely will linger, although Q4 visibility has improved.

1. Riley's Christopher Souther says capacity constraints and COVID-19 will slow Enphase's aggressive sales into new markets and more execution in international markets is needed to ensure a competitive position in new markets.

#3. Daqo New Energy

Daqo New Energy Corp. (NASDAQ:DQ), a leading Chinese polysilicon maker with a factory in Xinjiang, is one of the companies that have been hurt by the import ban.

Luckily, the company has something else going for it.

DQ shares jumped 17% two weeks ago after its subsidiary, Xinjiang Daqo New Energy, completed its IPO process and began trading on the Shanghai Stock Exchange's Star Board.

Daqo says Xinjiang Daqo's shares closed at RMB61.11/share on the first day of trading, good for a massive 184% jump compared to the IPO price.

Although parent company Daqo was able to re-rate from the move, the gains appear to have been short-lived and DQ shares have cratered 25.3% from the post-IPO surge.

Nevertheless, the event is worth noting because Xinjiang Daqo is the first-ever listing in which a major subsidiary of a U.S.-listed entity has returned to the Star Board, with other solar names such as JinkoSolar (NYSE:JKS) and Canadian Solar (NASDAQ:CSIQ) expected to follow suit.

By Alex Kimani for Oilprice.com

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