Caution Solar Investors: Rise In US Solar Panel Prices Is Not A Function Of Improved Fundamentals

Solar panel prices have been on the rise in recent months, providing a tailwind to solar stocks. However, according to Axiom analyst Gordon Johnson, investors should be careful about drawing conclusions about underlying demand.

In a new note Thursday, Johnson explained that the strong solar earnings so far in the second quarter may be driven more by politics than market fundamentals. In fact, Johnson says Suniva’s ongoing Section 201 trade case has been the primary driver of solar prices.

Back in April, Suniva filed a U.S. International Trade Commission petition asking for President Donald Trump to be granted permission to restrict solar panel imports under the authority of Section 201 of the Trade Act of 1974. Section 201 was intended to allow the president to place restrictions on imports if they pose a threat to national security.

In its petition, Suniva suggested Trump set minimum import prices of 78 cents per watt for modules and 40 cents per way for cells for at least the next four years. While the Section 201 case is still ongoing, Johnson says it is already supporting U.S. prices.

Since reporting earnings, First Solar, Inc. FSLR has been the only standout stock amid a 5 percent overall decline for the group, but Johnson said there’s a simple explanation for this divergence.

“The reason for this discrepancy in share price returns, as we see it, is co. guidance, which shows FSLR benefitting from section 201-induced demand pull-in, while SPWR, RUN & VSLR are not,” he wrote.

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In light of the Section 201 uncertainty, Axiom sees the solar space as a stock picker’s game for now.

Axiom maintains Buy ratings on First Solar and Canadian Solar Inc. CSIQ. In addition, the firm has a Hold rating on JA Solar Holdings Co. Ltd. (ADR) JASO and Sell ratings on Yingli Green Energy Holding Co Ltd (ADR) YGE and Solaredge Technologies Inc SEDG.