The Rise of Solar Stocks, Industry Outlook

Energy stocks turned green last week, with Canadian Solar (NASDAQ: CSIQ) jumping 13.3%, First Solar (NASDAQ: FSLR) up 12.52%, SunPower (NASDAQ: SPWR) rising 8.23% and SolarCity (NASDAQ: SCTY) up 1.86%, highlighting that market is gaining confidence in the solar industry, in spite of the tumbling oil prices.

One Week Price % Change (FSLR, CSIQ, SCTY, SPWR)

Major Players

Among the major players mentioned above, First Solar and Canadian Solar are the only two companies have positive ROI, also with the largest increases in stock prices last week.

Found in 1999, First Solar currently has a market cap of $7.1 billion, and trailing twelve months price to earnings ratio of 12.5. The company is one of the largest American solar panel manufacturers and a leader in producing thin-film solar panels that require less silicon than traditional silicon modules. Thin-film solar panels are usually less efficient, but First Solar created competitive advantage by improving the efficiency to a world record high level. The company released the Q4 2015 financial results on Tuesday with earnings per share doubled the consensus estimate. 

Canadian Solar was founded in 2001 in Canada, now a global leader in producing solar photovoltaic modules and panels as well as solar power systems. The company has a market cap of $1.2 billion and a P/E ratio of 6.81, a 40% lower than the industry average of 11.29, according to Reuters, with an impressive ROI (ttm) of 14%. Canadian Solar has its manufacturing base in China and holds 12.3% of market share of solar panel manufacturing industry in China. The company announced last week that its Q4 and full year 2015 results would exceed its prior guidance. The earnings call will take place on March 10.

Industry Outlook

Solar industry has seen significant development, stimulated by government support and declining input costs. Traditionally, solar energy is considered competing with coal and natural gas as substitutes in providing energy to consumers.  Thus, the collapsing of oil prices has been scaring investors away from solar stocks. However, solar and oil have little correlation in the real world and are not directly competing with each other. This fact gives investors considerable opportunities to reinvest in solar stocks.

Demand for solar will continue to rise with increasing demand for electricity and global climate change concerns lifted further. According to the U.S. Energy Information Administration, U.S. consumption for solar would rise 19% in 2016 and another 29% in 2017. In December last year, the Congress has agreed to extend the Investment Tax Credit (ITC) for five years to 2020, which is predicted to boost U.S. solar capacity significantly. Last year’s Paris Agreement also shows the determination of global leaders to stick to more stringent CO2 emission controls and support green energy. 

In addition, more diverse financing sources make solar energy increasingly viable for developing countries. For example, the IFC has provided Canadian Solar a financing package of $70 million to support its expansion in Vietnam.  “IFC views this transaction as a first step in a long-term partnership with Canadian Solar, a global leader in the industry, and we look forward to collaborating on business models that will enable low-carbon energy access,” said Alzbeta Klein, director of manufacturing, agribusiness and services at the IFC.

As solar energy becomes more scalable, affordable and efficient with the development of technologies and cost declines, the brighter future is yet to come for the solar industry.    

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