Renewable energy is booming in the United States. According to a report from the U.S. Energy Information Administration (EIA), last year, the consumption of renewable energy in the U.S. was up for the fifth year in a row, and comprised 12% of the total energy consumption in the United States.
The U.S. EIA report also states that solar energy comprises 11% of the renewable energy consumption in the United States. According to a Solar Energy Industries Association (SEIA) report, solar energy has seen an average annual growth rate of 42%.
Using the TipRanks Stock Comparison tool, let us compare two solar companies, First Solar and Sunrun, and see how Wall Street analysts feel about these stocks.
The author is neutral about both First Solar and Sunrun.
First Solar (NASDAQ: FSLR)
First Solar is a provider of solar modules that provide a “lower-carbon alternative to conventional crystalline silicon PV panels.”
Earlier this month, the company broke ground with its third manufacturing facility in Ohio, with a capacity of 3.3 GW. This facility will start operating in the first half of 2023. FSLR has invested $680 million in the facility. Notably, the facility is expected to raise the scale of First Solar’s Northwest Ohio footprint to a total annual capacity of 6 GW.
The company’s management had also announced additional capacity expansion in India during its second-quarter results. Mark Widmar, CEO of First Solar, said on the company’s Q2 earnings call that FSLR plans to invest $680 million “to add 3.3 gigawatts of manufacturing capacity in India.”
In Q2, the company posted net sales of $629 million, a decline of 2.1% year-over-year, primarily due to the sale of its Sun Streams projects 2, 4, and 5. Diluted earnings came in at $0.77 per share versus $0.35 in the same quarter last year, above the Street’s expectations of $0.56 per share.
The diluted EPS figure also exceeded J.P. Morgan analyst Mark Strouse’s estimate of $0.62 per share. Following the Q2 results, the analyst was sidelined with a Hold rating and a price target of $101 on the stock, with an approximately 7% upside.
The analyst remained “encouraged by recently solid bookings activity and visibility into FY22 and beyond.”
FSLR’s bookings remained solid with a “record year-to-date net bookings of nine gigawatts, which includes 4.1 gigawatts since April’s earnings call.” (See First Solar stock chart on TipRanks)
Analyst Strouse, however, adjusted his estimates for FSLR, as the company also lowered its FY21 EPS estimates, from a range of $4.05 to $4.75 per share, to $4 to $4.60 per share. FSLR said on its earnings call that “we also anticipate a shipping-related variable cost headwind of approximately 20 million, primarily due to elevated inbound freight costs for raw materials.”
Interestingly, according to the TipRanks Risk Factors tool, the company remained at a high production risk factor of 30.2%, as compared to the sector average of 12.1%. The company defines production risk as supply interruptions in essential components in spite of rising demand.
Turning to the rest of the Street, analysts are cautiously optimistic about FSLR, with a consensus of Moderate Buy, based on 8 Buys, 7 Holds, and 2 Sells. Yet the stock scores a high score of 9 out of 10 on the TipRanks Smart Score system, based on 8 unique data sets, indicating that the stock is likely to outperform the market.
The average First Solar price target of $96.87 implies an approximately 2.6% upside potential from current levels.
Sunrun (NASDAQ: RUN)
Sunrun is a provider of residential solar panels and home batteries in America. Recently, the stock has taken a beating, with the stock tanking 13.3% in the past month.
Even the sentiment among TipRanks Investors is very negative, with 3.6% of all portfolios held in TipRanks offloading the stock in the past 30 days. However, Hedge Funds are very positive about the stock and have increased their holdings by around 1 million shares in the past quarter.
The company’s results in Q2 were a mixed bag, as revenues jumped 121% year-over-year to $401.2 million, surpassing consensus estimates of $366.56 million. However, diluted loss came in at $0.2 per share, widening from a diluted loss of $0.11 per share in the same period a year back. Analysts were expecting a loss of $0.08 per share.
Tom vonReichbauer, Sunrun’s CFO, said in the company’s press release, “We remain on track to deliver a break-out year and are increasing our full-year growth guidance to 30%.” The company is also executing “the ongoing integration of Vivint Solar and navigating a dynamic supply chain environment.”
Sunrun acquired Vivint Solar, a residential solar provider in the U.S., at a purchase price of around $5 billion in October last year. In relation to this acquisition, RUN’s management expects cost synergies of around $120 million “in run-rate synergies by the end of 2021.” (See Sunrun stock chart on TipRanks)
As of June 30, RUN had 599,743 customers. According to Evercore ISI analyst James West, the rise in customers “represented 19% YoY growth, pro-forma for its Vivint acquisition.” The analyst was bullish, with a Buy rating and a price target of $87 (96% upside) on the stock, following the Q2 results.
The analyst also viewed favorably the transition of Co-Founder and CEO Lynn Jurich to Executive Co-Chair of the Board. Mary Powell, a current Director, will become Sunrun’s next CEO, effective August 31.
At its Q2 earnings call, Sunrun revealed its capital structure strategy that “will drive near-term cash generation using nonrecourse debt.” As a part of this strategy, RUN expects “to achieve cash proceeds equal to 95% to 100% of contracted subscriber value, measured at a 5% discount rate or about $30,000 to $31,500 dollars per subscriber based on Q2 subscriber values.”
Non-recourse debt is a type of loan that is secured by collateral, typically property.
Analyst West believes that this strategy will enable RUN to “maintain its ability to upsell additional products and services to customers while also retaining refinancing options on the non-recourse debt.”
“This will lead to strong cash flow generation and we expect that RUN will start to communicate to the market soon on its capital allocation strategy and the best way to maximize shareholder returns,” West added.
Turning to the rest of the Street, consensus is that Sunrun is a Strong Buy, based on 9 Buys. The average Sunrun price target of $79.89 implies an approximately 80% upside potential from current levels.
Bottom Line
While analysts are cautiously optimistic about First Solar, they are bullish about Sunrun. Based on the upside potential over the next 12 months, Sunrun seems to be a better Buy.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this articleDisclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.
