Barclays Is 'Broadly Positive' On Solar Group

• Most solar stocks have followed a downward trajectory over the past six months.
• Barclays’ Jon Windham has a broadly positive view of the Solar space.
• Weakness in energy prices has resulted in valuations that offer an attractive entry point, Windham stated.

“We are broadly positive on the solar space due to the combination of policy certainty supporting demand and weakness in energy prices providing an attractive valuation entry point,” analyst Jon Windham wrote. He expects US solar demand to continue to be strong.

The 2016-2020 estimates for US solar capacity demand has been raised by 33 percent to 57GW, to reflect the ITC extension, which is likely to “bridge the demand gap into state Clean Power Plan (CPP) implementation,” Windham said, while explaining that policy certainty could result in more stable demand growth and reduce earnings volatility.

Top Pick

The analyst named First Solar, Inc. FSLR as the Top Pick. The company is the market leader in utility-scale, with a highly robust balance sheet and positioned well to exploit the long-term demand to achieve CPP. The rating remains at Overweight, while the price target has been raised from $71 to $90. The EPS estimates for FY1 and FY2 have been raised from $3.49 to $4.60 and from $3.77 to $4.49, respectively.

Distributed Generation Developers

Coverage of distributed generation [DG] developers SolarCity Corp SCTY and Sunrun Inc RUN have been initiated with Overweight ratings and price target of 49 and $12, respectively.

Windham projected 40 percent y/y installation growth for 2016, adding, “The emerging nature of the DG state policies, concentrated geographic demand, and significant financing requirements make DG a high risk sector, in our view.”

Upgrades

The rating for SunPower Corporation SPWR has been upgraded from Equal-Weight to Overweight, with the price target being raised from $26 to $32.

Downgrades

Barclays downgraded the rating for 8Point3 Energy Partners LP CAFD from Equal-Weight to Underweight, while reducing the price target from $16 to $14.

TerraForm Global Inc GLBL has been downgraded from Overweight to Equal-Weight, while the price target has been lowered from $10 to $4.