Goldman sees a 'meaningful ramp-up' in solar ahead and gives the best ways to play it
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The Inflation Reduction Act's tax credits will likely prompt surging demand for solar power in the U.S., according to Goldman Sachs. And the firm sees stocks that will benefit from the domestic push. The law included a 30% credit toward the installation of solar panels or other equipment that harnesses renewable energy. But people must act within the next nine years to get the most savings. The 30% credit can be applied to projects completed between Jan. 1, 2022 and the end of 2032. Projects finished in 2033 and 2034 are only eligible for credits of 26% and 22%, respectively. "We expect the US to also see a meaningful ramp-up in solar deployment, catalyzed by expanded incentives into the next decade by the Inflation Reduction Act, and visible signs of meaningful renewables deployment in China will likely be supportive for sustainable expansions elsewhere," Goldman Sachs analyst Brian Singer said in a note to clients Monday. But he said rising interest rates and volatility within the banking sector could hurt early-stage investing and push focus onto renewable companies with strong corporate returns and balance sheets in the U.S. Singer also expects China to accelerate its use to renewables and achieve peak emissions by the end of the decade. Given that China currently holds around 90% of the solar supply chain, an increase in the appetite for solar energy in China could stymie growth in the U.S. — even if American demand is there, Singer said. Because of this, he recommends solar stocks that broadly play to supply chain diversification and onshoring trends while also having strong business fundamentals. CNBC Pro compiled each stock's year-to-date performance, the share of analysts who have buy or overweight ratings and the average upside or downside expected, according to FactSet. Here's the list: Despite getting beat down this year, Enphase is well-liked on Wall Street and seen as poised for a rebound. About three out of every four analysts rate the stock a buy, with the average analyst price target implying the stock could gain slightly more than 52% over the next year. It has the largest average upside of any stock on Singer's list. Singer said he liked Enphase because of its above-average returns and because it is one of the least owned among the list within environment, social and governance funds, meaning the stock may not be as overbought. He likes MasTec and General Electric for the same reasons. Raymond James, meanwhile, said in an upgrade to outperform from market perform last week that the company's growing European business could become more of a tailwind for the sold-off stock. "We are turning positive on Enphase for the first time since 2013, i.e., ancient history by solar industry standards," said Raymond James analyst Pavel Molchanov in a note to clients. "This upgrade is partly opportunistic and partly thematic." Array Technologies is also liked by Singer given its expected above-average return and because it's more widely owned within ESG funds, which he said can mean there's a consensus that it will perform well going forward. The stock has buy ratings from almost four out of every five analysts and an average price target that implyies the stock will rally nearly 40% in the next year after gaining just 1.6% so far in 2023. Last week, the company reported per-share adjusted earnings that came in line with the 10 cents expected by analysts, according to FactSet. The company's revenue came in above the consensus estimate at $402.1 million. Array management also reiterated its forecast for the year. Singer similarly likes SolarEdge for its returns and prevalence in the ESG space. Though the stock has lost almost 1% since the start of the year, analysts expect it to rally more than 30% over the next 12 months. Seven out of every 10 analysts rate the stock a buy. First Solar , meanwhile, should specifically benefit from the push to expand domestic renewable energy capacity, Singer said. While the stock has surged more than 40% since 2023 began, analysts expect shares to slip 1.3% over the next year. Still, nearly two-thirds of analysts say the stock is worth buying. — CNBC's Michael Bloom contributed to this report