Given the volatility of global energy markets and rapidly fluctuating fuel costs, the demand for solar energy is anything but stable. Analysts weighed in on solar power firms SolarCity Corp (NASDAQ:SCTY) and Canadian Solar Inc. (NASDAQ:CSIQ) following industry updates and new guidance, respectively. Let’s illuminate recent analyst insights on the two solar energy companies:
Julien Dumoulin Smith, analyst at UBS, weighed in on SolarCity, reiterating a Neutral rating and a price target of $23 due to earnings updates from competitors and the difficult macro conditions solar power companies are facing.
Vivint Solar Inc, an American solar energy company and strong competitor of SolarCity, announced their 4Q15 earnings and reported a decrease in market share from 16% to 11%. Their stock plunged following these reports. In the specific market segment of residential solar power companies, the performance of competitors is very relevant to the performance of SCTY.
Furthermore, various disruptive acquisition attempts have destabilized the residential solar industry in recent months. The analyst stated, “We stress that the messy [SunEdison, Inc.]/ [TerraForm Power, Inc.] acquisition attempt of [Vivint Solar Inc] dilutes the read-throughs on SCTY, but note that limited remaining tax equity and onerous term financing conditions add to doubts on residential solar; while the underlying distress would suggest this is isolated, we see adding to challenges particularly for smaller competitors of both SCTY and RUN.”
SolarCity stock has been highly volatile in recent months, as indicated by the 52-week range of $16.31 – $63.79. The stock price approached the strong valued it had been situated at this past spring in mid-December and then sharply plummeted in February. In light of this instability, the analyst “[remains] on the sidelines pending clarity on mgmt’s MW trajectory with 1Q and internal financing strategy update: likely via more bank debt and a Devco strategy.”
According to TipRanks, 12 analysts have rated SolarCity in the last 3 months with 7 bullish, 4 neutral and 1 bearish. The average 12-month price target for the stock is $49.91 based on these 12 analysts, indicating an 86.16% potential upside from where shares last closed. The analyst has a 58% success rate recommending stocks and an average return of 2.8%.
Canadian Solar Inc.
Canadian Solar, a diversified global solar energy provider with subsidiaries in 20 countries, released new guidance for 2016 with statistics lower than forecasted by brokerage firm Canaccord. Analyst Jonathan Dorsheimer reiterated his Buy rating on the company and decreased his price target from $35 to $30.
The analyst believes “the company’s module business remains healthy and will experience strong long-term demand with a stabilizing margin structure; any short-term fluctuations should serve as buying opportunities.” This sentiment is echoed by the Canadian Solar report of 4Q15 earnings at $1.12B, above the forecasted range. New guidance for 2016 indicates an anticipated revenue range between $2.9B and $3.1B.
Dorsheimer stated, “Although YieldCo markets remain weak, we believe Canadian Solar’s patient and flexible strategy for its high quality assets has gone underappreciated and therefore overly discounted.” A Yieldco is a dividend growth-oriented financing mechanism that bundles operating assets to produce stable cash flows. New 1Q16 indicates a revenue range between $645M and $695M, indicating a drop from the estimated $860.9M due to “the company’s plans to limit project sales in anticipation of holding the assets for a YieldCo.”
The company is also aware of the possibility that oversupply may become troublesome due its massive expansion of its overall capacity. The analyst stated, “management indicated that its build-outs will focus on closing the gap between its cell/wafer capacity and its module capacity in order to increase internal vertical integration and improve margins.” Given these improvements, the company should be prepared if any short-term oversupply issues were to arise.
Dorsheimer has a 41% success rate per rating and an average loss of 3.7% per recommendation. According to TipRanks, 6 analysts have rated Canadian Solar in the last 3 months and all are bullish. The 12-month average price target between these 6 analysts is $34.20, indicating a 70.06% upside.