On Wednesday, the Dow Jones Industrial Average closed below 20,000 points for the first time since February 2017, wiping out nearly all the gains made since President Donald Trump assumed office.
For a while, it looked like renewable-energy stocks were a safe harbor as the spreading coronavirus tanked the market. JPMorgan analysts said on March 9 that 12 of the alternative-energy stocks the bank tracks — which include many companies in the clean-energy industry — were up an average of 25% since the start of the year, while the S&P was down 8%. But just a week later, those stocks had also collapsed and were down an average of 28%.
As clean-energy stocks were late to fall, they could also be the first to recover once the pandemic peaks, according to a JPMorgan equity-research note.
“Last in, first out may be a credible outcome for the Alt Energy stocks, in our view,” the analysts said.
While the virus crippled supply chains for solar panels, wind turbines, and batteries rooted in China, most factories are now back online.
The more pressing concern is slowing demand, according to the research firm BloombergNEF.
China, the largest solar market, postponed its mega-auction in which solar developers submit project bids to the government. That could push enormous builds into 2021, BloombergNEF analysts said. Meanwhile, US homeowners may be less inclined to adorn their homes with expensive solar arrays during a recession.
But in JPMorgan’s view, the dip in demand will be “buoyed” by the same force that has pushed renewables into the mainstream: falling costs. Since 2009, the price of solar panels has fallen 80%, while the cost of wind turbines has dropped 30 to 40%.
“Demand for wind and solar growth is largely fueled by falling unit costs that put renewables increasingly in-the-money versus gas and coal in the power sector, so we expect demand to hold up over the longer-term,” JPMorgan analysts wrote.
According to the analysts, utility-scale solar and wind projects — which account for much of the renewable energy in the US — also remain largely insulated from the pandemic. They’re often in remote locations, the note said. Plus, they have “long-deployment cycles” that an economic slowdown would be unlikely to derail.
While the clean-energy industry as a whole could be quick to recover, not all companies face equal odds, the analysts said.
In the research note, JPMorgan analysts listed a handful of renewable-energy companies that they said could outperform their competitors. Here are their top picks, ordered from smallest to largest market cap as of Thursday midday.
Sunnova — $582 million
Market cap: $582 million
IPO date: 2019 (NYSE: NOVA)
What it sells: Residential solar systems and, increasingly, batteries.
Why it matters: Sunnova went public in the summer, making it the first major solar initial public offering since 2015. It’s one of the largest residential solar companies in the US. And with its battery offering, the company is poised to benefit from consumers seeking energy stability in the wake of blackouts and superstorms.
What JPMorgan said: “Sunnova is differentiated by a unique go-to-market strategy, it is growing faster than its nearest peers (off a smaller base), and the stock should appeal to a broader base of investors.”
Sunrun —$1.1 billion
Market cap: $1.1 billion
IPO date: 2015 (Nasdaq: RUN)
What it sells: Residential solar systems and batteries.
Why it matters: Sunrun is the largest US residential solar company and considered one of Tesla’s biggest competitors. The company “has done a phenomenal job” at going after “the void” in the residential solar market that Tesla created when it acquired SolarCity in 2016, according to Ron Pernick, the founder of the clean-energy-indexing website Clean Edge.
What JPMorgan said: “RUN is well positioned within the high-growth US residential rooftop solar market, and its leading scale could present adjacent opportunities for growth, including storage and grid services.”
First Solar — $3.5 billion
Market cap: $3.5 billion
IPO date: 2006 (Nasdaq: FSLR)
What it sells: Solar panels. The company also develops and finances large-scale solar power plants.
Why it matters: Few US-based solar panel manufacturers have stayed in business. First Solar is an exception, and it’s grown into the largest PV-module maker in the country. The company says it has shipped more than 20 gigawatts of solar panels worldwide.
What JPMorgan said: First Solar “is already booking volume for FY22 and beyond at attractive gross margins and has plans in place to continue fundamental as well as application-related improvements in module efficiency. We believe the recent pullback is a buying opportunity.”
SolarEdge — $3.9 billion
Market cap: $3.9 billion
IPO date: 2015 (Nasdaq: SEDG)
What it sells: Solar inverters and other solar-related electronics.
Why it matters: Inverters are a core part of solar systems; without them, you can’t convert the power that panels generate into a form of electricity that homes can use. The company is also expanding its business to encompass electric-vehicle charging and energy storage.
What JPMorgan said: “SEDG reported another strong quarter and issued guidance ahead of expectations. New product introductions over the next few quarters could lead to further share gains against traditional inverter suppliers and open new market opportunities, presenting potential upside to estimates.”
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