Jefferies says ‘all aboard’ the solar stock roller coaster, names its top picks for 2024
Solar stocks have faced a brutal year underperforming the S & P 500 by about 60% due to high interest rates and falling demand, but headwinds could shift to tailwinds in 2024, priming key companies for a rebound, according to Jeffries. The biggest headwind for solar, particularly the residential sector, has been high interest rates, but the Federal Reserve gave the industry an early Christmas gift by signaling this week three cuts in 2024. Analyst Dushyant Ailani is now calling for investors to get "aboard the solar coaster" with utility scale companies, such as First Solar, best positioned to deliver value in the next year. Ailani is initiating a buy on First Solar at a stock price target at $211, indicating 33% upside from Thursday's closing price of $158.25. "Exposure to utility scale solar provides manufacturer's with firm backlog, cash flow certainty, and scale vs residential solar," Ailani wrote in a note Friday. There is also evidence that the residential sector may be bottoming out with residential solar permits declining 2% month over month in September, versus 12% in June. Federal regulators are taking steps to ease delays in connecting new electric generation into the transmission system. Rising utility rates, the declining cost of solar equipment and support from the Inflation Reduction Act all provide key catalysts for the residential sector. Inverter manufacturer Enphase is rated a buy with a target of $145, which would deliver 21% upside from its last close at $120.22. The company has a strong gross margin of about 50% and a solid balance sheet despite headwinds, Ailani wrote. The residential installer Sunrun is rated a buy at a target of $25, suggesting 39% upside from its last close of $17.94. The company has 60% market share in leasing solar installations, which is proving to be a viable option in a "higher for longer interest rate environment," Ailani wrote. Ailani has put a hold on Array Technologies and SunPower .