More long-only investors interested in solar after tax extension, analyst says
The extension of the 30% investment tax credit, or ITC, for solar energy will boost the margins of solar energy companies and will improve the outlook for companies in the rooftop solar energy business, research firm Cowen wrote in a note to investors today. Moreover, since the ITC was extended, many more long-only investors have become interested in the space, the firm added. WHAT'S NEW: The ITC extension will cause U.S. solar rooftop installations to "grow rapidly," according to Cowen analyst Jeffrey Osborne. SolarCity (SCTY), which specializes in installing rooftop solar systems, will benefit from continued access to low-cost capital and increased demand as a result of the ITC extension, the analyst believes. Other companies likely to benefit from improved residential rooftop solar demand spurred by the extension include Enphase (ENPH), SolarEdge (SEDG) and Solar3D (SLTD), Osborne stated. Enphase sells microinverters for solar systems, while SolarEdge provides monitoring solutions for solar systems and Solar3D sells them. Also poised to benefit from the law are SunEdison (SUNE), SunPower (SPWR), and First Solar (FSLR), which develop large-scale solar systems, according to Osborne. Meanwhile, companies across the solar industry had been cutting costs in an effort to cope with the pending reduction of the ITC, the analyst reported. Now that the 30% ITC has been extended, these companies will benefit from margin increases as a result of their cost cutting, Osborne predicted. The analyst identified SunEdison and SolarEdge as his favorite stocks in the sector. The sales of projects by SunEdison, along with the closing of a number of its acquisitions, will increase investor confidence in the name, while SolarEdge will benefit from its new products and the launch of additional energy storage products by its partner, Tesla (TSLA), Osborne predicted. Additionally, in the last few weeks, many more long-only investors have expressed interest to Cowen about solar, said the analyst, who thinks such investors had previously been using the 30% ITC expiration "as an excuse" to avoid investing in solar stocks. WHAT'S NOTABLE: SunEdison announced today that it had acquired solar power plants from Dominion (D) and simultaneously sold the assets to its Terra Nova Renewable Partners joint venture. SunEdison also announced an agreement to extinguish $336M of exchangeable notes. PRICE ACTION: In early trading, SunEdison gained 5% to $5.27, Enphase rose 3% to $3.56, SolarEdge advanced 4% to $28.62, Solar3D added 2% to $3.50, SunPower lost 1% to $30.16 and First Solar was flat near $66.50
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