Goldman Sachs Upgrades Residential Solar Stocks

Solar stocks have made a big comeback so far in 2019, with the INVESCO EXCHANG/SOLAR ETF TAN up 48.5% year to date. However, one Wall Street analyst said Tuesday residential solar stocks will continue to shine in the second half of the year.

The Analyst

Goldman Sachs analyst Brian Lee issued the following ratings and target changes to his solar coverage:

• SunPower Corporation SPWR upgraded from Neutral to Buy, price target raised from $6 to $11.
• Sunrun Inc RUN upgraded from Neutral to Buy, price target raised from $15 to $20.
• Solaredge Technologies Inc SEDG upgraded from Sell to Neutral, price target raised from $35 to $52.
• Vivint Solar Inc VSLR reiterated at Buy, price target raised from $7.50 to $9.
• JinkoSolar Holding Co., Ltd. JKS reiterated at Sell, price target raised from $9 to $13.

The Thesis

Lee is still bullish on utility scale solar, including Goldman Conviction Buy First Solar, Inc. FSLR. However, he discussed several major tailwinds for the U.S. residential solar business in coming quarters. The 2020 California New Homes Mandate will soon start generating demand, an end to the 30% ITC tax credit at the end of 2019 should pull demand forward in the fourth quarter and a favorable credit backdrop makes it easy and affordable to get solar financing, Lee said.

“We are incrementally positive on US residential solar stocks and see a number of tactically attractive buying opportunities ahead of 2H19 volume tailwinds and amidst recent signs of ongoing strength in the financing environment,” Lee wrote in Tuesday’s note.

Based on the updated price targets, Goldman sees an average of 4% additional upside for solar stocks over the next 12 months, even after the strong performance year to date. The biggest exception to the bullish outlook is Jinko, where Goldman’s target implies about 47% downside.

Price Action

Here’s how solar stocks mentioned reacted on Tuesday morning:

• First Solar was up 2.8%.
• Jinko was up 1.4%.
• Vivant was up 6%.
• Solaredge was up 4.6%.
• Sunrun was up 4.1%.
• SunPower was up 18.1%.

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