Solar Stocks Struggle Under Storm Clouds

The storm clouds looming over solar stocks show no sign of dissipating.

Sunrun's Disappointing Earnings Report

Sunrun, a prominent residential solar company, recently delivered a disappointing earnings report. The sector has been struggling due to weak demand stemming from various factors. Higher interest rates have prompted consumers to postpone financing home solar installation projects. Furthermore, alterations in California's rooftop solar incentives as well as a decline in demand across Europe have compounded the industry's challenges.

Impacts on Revenue and Stock Prices

Lower interest rates could potentially revive the sector. Yet, the timing of the Federal Reserve's interest rate cuts remains uncertain, especially following the release of the minutes from its latest meeting on Wednesday.

Sunrun reported a substantial loss of $1.60 per share in the fourth quarter, significantly wider than the expected 21 cents per share predicted by Wall Street. Revenue also took a hit, plummeting to $517 million - marking a 15% decrease from the previous year and falling short of estimates at $533 million based on FactSet data. Consequently, Sunrun stock dropped 9% in pre-market trading on Thursday.

Tough Earnings Season for Solar Companies

Earnings season has proven to be challenging for residential solar companies. Sunnova, another key player in the industry, also disclosed its results post-market on Wednesday. The Houston-based company reported a loss of $1.53 per share, surpassing expectations for a loss of 26 cents per share according to FactSet data. Similarly, revenue failed to meet estimates, leading to a 5% decline in Sunnova stock during early trading on Thursday.

SolarEdge Shares Plummet Amid Revenue Decrease

Shares of SolarEdge took a hit on Wednesday, tumbling 12% as the company reported a significant 65% decrease in revenue for the fourth quarter. In addition, its outlook for the beginning of 2024 painted a rather bleak picture. Other solar stocks followed suit in Wednesday's session, with Sunrun and First Solar both experiencing a 2% decline. The Invesco Solar exchange-traded fund (ETF) also dropped by 2.3%, marking a 40% decrease over the past 12 months.

Industry Outlook and Potential Recovery

Despite the overall dip in the industry, Thursday seemed to offer some stabilization, except for Sunrun and Sunnova. Enphase Energy saw a modest increase of 0.8%, while First Solar rose by 1.3% and SolarEdge recorded a 0.2% gain.

Role of Federal Reserve and Analyst's Insights

The Federal Reserve is anticipated to play a crucial role in the potential recovery of the sector, with lower interest rates possibly stimulating demand for solar panels. However, recent minutes from the central bank's meeting hinted at the possibility of rates remaining higher for an extended period. Fed officials are reluctant to cut rates until they are confident that inflation is on track to reach 2%.

Analyst Biju Perincheril from Susquehanna holds an optimistic view on Sunrun stock, giving it a Positive rating with a price target of $25, suggesting a significant 60% upside from Wednesday's closing price. He identifies interest-rate cuts as a key factor that could drive the stock up, while higher rates pose a downside risk.

Anticipated Rate Cuts and Future Prospects

Although it may require some patience, investors are eagerly awaiting potential rate cuts from the Fed later this year. The only uncertainty that remains is the timing of these cuts. Despite the current challenges, there is confidence that the cloud hanging over the solar sector will eventually dissipate.

Investors and industry experts alike are hopeful for a brighter future ahead.