Analysts Are Buying First Solar, SunPower Because Of This Trend

• Macquarie believes that commercial-scale solar PV is nearing grid parity in major markets around the world.
• The firm believes that SunPower Corporation SPWR is well-positioned to capitalize in the long-term on the distributed power revolution.
• In the short-term, the firm sees a strong 2016 ahead for First Solar, Inc. FSLR before the U.S. subsidy changes at the end of next year.

In a new report, Macquarie analyst Gurpreet Gujral explains why now is the time to be buying First Solar and SunPower. Macquarie sees a major trend in the solar industry that will make 2016 a big year for the two companies.

DG revolution
According to Macquarie’s research, commercial-scale solar photovoltaic (PV) is on the cusp of parity with grid power in many regions. As solar installation costs continue to fall, Gujral predicts that by 2018, solar power will be cheaper for commercial-scale users in many parts of the U.S., Japan, and Europe than grid power.

“We believe we are at the start of a distributed generation (DG) revolution that will have a far-reaching impact for many industries,” he explains.

SunPower well positioned
Gujral believes that SunPower is extremely well-positioned to capitalize on this revolution. The company produces the most efficient commercial-scale solar modules. SunPower’s modules operate at about 21.5 percent efficiency, significantly higher than the 16-18 percent efficiency of competitors’ modules. Gujral feels this best-in-class efficiency justifies the higher price that the company charges for its modules, and buyers will realize that the efficiency will lead to better long-term returns.

Macquarie initiated coverage on SunPower at Outperform and set a price target of $34.13.

First Solar too good to ignore
Gujral believes that First Solar is in position to achieve record revenues in 2016 ahead of changes to the subsidy laws in the U.S. at the end of the year. However, without a strong foothold in the DG market, Macquarie does not see a clear growth path beyond 2016.

For now, the near-term outlook is so good for First Solar that Macquarie initiated coverage on the stock at Outperform and set a $63.40 price target.

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