Why Solar Energy Stocks Were on Fire This Week

What happened

Solar energy stocks took off this week as investors got some good earnings news and some interest rate relief.

According to data provided by S&P Global Market Intelligence, shares of Canadian Solar (NASDAQ: CSIQ) jumped 9.2% between last Friday's close and the close of trading on Thursday. Following that lead was JinkoSolar (NYSE: JKS) rising 11.7%, Array Technologies (NASDAQ: ARRY) popping 16.1%, Nextracker (NASDAQ: NXT) gaining 10.8%, and Maxeon Solar Technologies (NASDAQ: MAXN) rising 8.6%.

So what

There were two important earnings reports this week. Racking supplier Array Technologies announced that fourth-quarter 2022 revenue was up 83% to $402.1 million and net loss fell by nearly half to $17.3 million. In 2023, the company expects revenue to be $1.8 billion to $1.95 billion with adjusted net income per share of $0.75 to $0.85.

Over at Canadian Solar, revenue was up 29% to $1.97 billion and earnings per share of $1.11 easily beat estimates. For 2023, management expects revenue of $8.5 billion to $9.5 billion, showing continued growth.

The broad takeaway here is that solar manufacturers are experiencing strong demand and they expect that to continue well into 2023. That won't be a company-specific trend, so it'll raise the whole industry if it plays out that way and that's why stocks are up broadly.

It also can't be underestimated how important the interest rate trends were this week for the solar industry. Solar developers rely on low rates to make the economics of solar farms work (which I explain further in this video) and rising rates were pressure on the industry. But it appears rate pressures are easing and in the past month the U.S. 10-year government bond interest rate has fallen from 3.95% to 3.4%.

The Federal Reserve indicated it was considering pausing interest rate increases after a 25-basis-point increase this week. That would be welcome news for the solar industry.

Now what

Solar energy stocks have fallen sharply over the past year as interest rates have risen and once-astronomical energy prices brought on by Russia's invasion of Ukraine have eased. But there is still fundamental momentum behind the industry and that's coming to light.

Keep in mind the companies highlighted above are primarily utility-scale solar suppliers. There are different dynamics in residential and commercial solar and investors may be seeing some benefits from the long lead time to build a large solar farm.

What's encouraging is that the demand for solar equipment today isn't just isolated to one country or region of the world, it's competitive everywhere. That eases some of the local political and policy pressures that impacted companies over the past decade. And if utilities continue to see the benefit of solar, it's likely the steady drumbeat of growth will continue.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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