Axiom's Gordon Johnson Sees Pain Coming For Solar Investors Who Went Long After ITC Extension

In a new report, Axiom analyst Gordon Johnson takes a look at whether or not investors that bought solar stocks following the recent extension of the Investment Tax Credit (ITC) made a costly mistake.

Johnson believes that solar bulls’ key arguments center on strong 2016 demand stemming from the ITC extension. However, according to Johnson, the market seems overly optimistic about the impact of the extension.

“With the ITC in place since ’06, its extension, we blv, is not a demand driver, but rather ‘not a demand killer,’” he explains.

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Axiom sees access to low cost debt and low capital cost as the true drivers of U.S. solar growth, both of which will be less favorable for solar companies in 2016 than they were in 2015. By definition, Johnson says, this change means solar demand will be lower in 2016.

Axiom has Sell ratings on JA Solar Holdings Co., Ltd. (ADR) JASO, Trina Solar Limited (ADR) TSL, Yingli Green Energy Holding Co Ltd (ADR) YGE and SolarCity Corp SCTY.

Disclosure: the author holds no position in the stocks mentioned.