By: Spencer Israel
For most of 2019, solar was the best-performing industry in U.S. equities.
As recently as August, nearly every stock in the Invesco Solar ETF (TAN)—the largest solar ETF by assets—was up double digits in 2019, and two of its largest holdings, Enphase Energy (ENPH) and SolarEdge (SEDG), had more than doubled for the year. TAN itself was at a new 52-week high and leading all non-leveraged equity ETFs for the year as recently as mid-September.
But that was then. The scorching hot solar trade of 2019 has cooled off dramatically. Over the last two months:
Fundamentally, earnings for the sector were decidedly mixed. Sunrun, SolarEdge, Enphase, and SunPower all exceeded analyst estimates on the top and bottom line in the third quarter. But First Solar, long considered the strongest name in the space, reported that third quarter revenue fell 19% on a year-over-year basis, while Canadian Solar reported worse-than-expected third quarter earnings and gave fourth quarter sales guidance far below expectations.
Even if everybody had met their third-quarter expectations however, it’s unlikely buyers would have stepped up. In a sense, solar’s tremendous 2019 may have been working against it, as the market was looking for earnings that would justify the rally.
The earnings reactions to RUN, SEDG, and SPWR, the three solar companies that reported the strongest quarters, tell us all we need to know:
And with the exception of SolarEdge, which got its price target raised at Canaccord Genuity and JP Morgan, the sell-side has responded by lowering price targets across the board. On a macro level, GLJ Research put out a note last month calling for solar prices to fall through 2020 on weaker demand in China. They also noted $25 million worth of insider selling in SolarEdge between August and October, suggesting insiders have been using the rally’s pause as a selling opportunity.
The author has no positions in any of the securities mentioned. All performance data as of Nov. 13, 2019.
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