Solar Energy has been praised and mocked by energy users over the past several years. With several Solar companies failing spectacularly, like Solyndra, and Abound Solar, the historic returns have been abysmal at best.
After over 40 years of government investment in renewable energy (the U.S. alone spent $ 154.7 billion from 1973 to the end of 2013), it appears as though solar energy is finally getting a strong foothold in the World energy segment. In 2013, we finally saw renewable energy companies posting solid returns, and seeing significant analysts’ upgrades for this quarter, and more importantly, out through 2015 as well.
Why Are Solar Companies Growing All of a Sudden?
In just under three years, total global PV (Photovoltaic) capacity grew from 50 gigawatts to 100 gigawatts. It is expected that in the U.S. alone that production is projected to grow to between 7,000 and 8,000 gigawatts by 2016 (now that is some serious growth!).
Moreover, the U.S. governments federal investment tax credit (ITC), which is currently at 30% is set to expire in 2015, and then go to 10% in 2016. This spread has been viewed in two separate, but equally optimistic potential results.
First, the industry is expected to see many companies take advantage of the 30% ITC, and build more panels (another aspect of the expected strong growth of the industry), storage capacity, and other production items up to the end of 2015.
The second, is that once the ITC drops to 10%, companies can utilize a higher rate of depreciation to shelter the company’s profits. So the cut in ITC for 2016 should not hurt these companies because they can protect themselves on the opposite side of the tax credit system.
Solar Companies to Consider
The Solar Industry is currently ranked #46 out of 265 total industries (top 17%). In the past week, this industry has moved up 33 places (to the current #46) showing the positive growth potential of the group.
Canadian Solar Inc (CSIQ – Analyst Report), Zacks Rank #1 (Strong Buy), is a designer, developer, manufacturer, and seller of solar powered products worldwide. Their products are used for residential, commercial, and industrial solar power generation systems.
Over the past 60 days earnings estimates have jumped; for Q1 2014 earnings estimates have risen from -$ 0.05 to $ 0.07 (creating a year over year increase of 172.5%), Q2 2014 has increased from $ 0.49 to $ 0.74. For fiscal year 2014, earnings estimates have risen from $ 1.66 to $ 3.66 (year over year increase of 481.35%), and for fiscal year 2015, earnings estimates has increased from $ 2.02 to $ 4.65. Yes, estimates have more than doubled for this company in the past two months!
Jinkosolar Holdings Co. (JKS – Snapshot Report), Zacks Rank #2 (Buy), engages in the design, developing, producing, and marketing of photovoltaic (PV) products in China and internationally. This company sells its solar modules to distributers, project developers, system integrators, and other players in the solar industry.
Like CSIQ, Jinkosolar has seen its earnings estimates upgraded over the past 60 days; for Q1 2014 earnings estimates have risen from $ 0.32 to $ 0.43 (this would be a 176.79% year over year growth). For the fiscal year 2014, earnings estimates have increased from $ 2.73 to $ 3.43. And finally, earnings estimates for 2015 have also risen from $ 4.42 to $ 4.54.
Another positive from Jinkosolar, is that the company has posted a positive earnings surprise for the past four consecutive quarters, with an average positive surprise of 326.79%. That means this company not only beats their earnings expectations, they crush them!
Trina Solar Limited (TSL – Snapshot Report), ranked Zacks #2 (Buy) is an integrated solar-products manufacturer that engages in the design, development, manufacturing, and sale of PV modules worldwide. TSL, sells its products to power plant developers and operators, distributers, wholesalers, and PV system integrators.
Similar story to our two other recommendations; over the past 60 days analysts have been significantly upgrading their earnings estimates for Trina Solar. For Q1 2014, earnings estimates have risen from -$ 0.09 to -$ 0.04, which would be a 95.65% year over year growth.
Fiscal year 2014 earnings estimates have increased from $ 0.10 to $ 0.11 (122.5% year over year growth), and fiscal year 2015 have risen from $ 1.34 to $ 1.60. Finally, like Jinkosolar, Trina has a strong history of beating earnings estimates, and has had three consecutive positive earnings surprises, with an average surprise of 100.0%. Another company that doesn’t just meet expectations, but blows them away on a consistent basis.
Other Companies to Consider
While the above three companies are solid stock picks, you may also want to consider these other Zacks Ranked #2 (Buy) stocks in the Solar Industry for your portfolio. Both Forcefield Energy (FNRG), and Renesola Ltd (SOL – Analyst Report) depict a solid growth story out to 2016 as well.
Bottom Line
While the stock market flirts with all time high levels, it is becoming more difficult to find a long term growth sector. With the increased production capacity, tax incentives, and stronger public support the Solar Industry is positioned for sustained growth through 2016. So if you are looking for a new growth story, Solar, and in particular any of the aforementioned stocks, could be your best bet for the long term.
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