Solar companies gained a lot of attention in 2022 as soaring oil and gas prices reinforced the need to shift to renewable energy sources. Moreover, the significant tax credits under the Inflation Reduction Act, passed in August 2022, are expected to accelerate the adoption of solar energy. Given this promising demand backdrop, we used TipRanks’ Stock Comparison Tool to place Enphase Energy (NASDAQ:ENPH), Sunrun (NASDAQ:RUN), and First Solar (NASDAQ:FSLR) against each other to pick the most appealing solar stock as per Wall Street pros.
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Enphase Energy (NASDAQ:ENPH)
Enphase and SolarEdge Technologies (SEDG) hold a duopoly on the U.S. residential solar inverter market. Enphase manufactures microinverters that convert direct current (DC) generated by a single solar module to alternating current (AC).
Enphase is growing rapidly, with Q3 2022 performance reflecting robust demand trends. The company’s Q3 revenue increased nearly 81% year-over-year to $634.7 million and adjusted EPS surged 108% to $1.25. Aside from North America, the company is experiencing impressive growth in Europe, supported by solid demand for its products in the Netherlands, France, Germany, Belgium, Spain, and Portugal.
Is Enphase a Buy, Hold, or Sell?
Recently, Daiwa Securities analyst Jonathan Kees initiated coverage on Enphase Energy with a Buy rating and a price target of $335, based on Enterprise Value (EV)/adjusted 2023 EBITDA multiple of 49x. Kees noted that his target multiple is nearly in line with the “2.1-year average of 50.4x/, making the risk/reward more acceptable.”
Kees highlighted that Enphase has been winning market share in a duopoly, delivers the highest margins, and remains “the predominant microinverter tech company.” Moreover, the company is expanding beyond the U.S., doubling its presence in Europe each year over the last two years.
Wall Street’s Strong Buy consensus rating for Enphase stock is based on 14 Buys and three Holds. The average ENPH stock price target of $329.59 implies 24.4% upside potential. Shares rallied nearly 45% in 2022.
Sunrun (NASDAQ:RUN)
Sunrun is one of the leading players in the residential solar market. As of September 30, 2022, Sunrun had 759,937 customers, reflecting a 21% year-over-year growth. The company impressed investors with a 44% increase in its Q3 2022 revenue to $631.9 million. Q3 earnings per share (EPS) jumped significantly to $0.96 from $0.11 in the prior-year quarter, fueled by the company’s pricing power and strong demand.
Installed solar energy capacity increased 17% to 256 megawatts in Q3 2022 and the company guided for about 25% growth in the full-year (2022) capacity. While Sunrun’s debt levels are high, it is well-positioned to meet its obligations and grow further to capture opportunities in the solar energy market.
Is Sunrun a Good Stock to Buy Now?
Recently, Susquehanna analyst Biju Perincheril slightly increased the price target for Sunrun stock to $42 from $41 and reiterated a Buy rating.
Sunrun scores a Strong Buy consensus rating based on 12 Buys and two Holds. The average RUN stock price target of $46.93 implies 95.4% upside potential. Analysts see the 30% dip in the stock in 2022 as an attractive opportunity to build a position for the long-term.
First Solar (NASDAQ:FSLR)
First Solar stock had a stellar rally last year as the company is seen as a major beneficiary of the Inflation Reduction Act. The U.S.-based manufacturer of solar modules reported a larger-than-anticipated loss in Q3 2022 and lowered its full-year earnings guidance, citing elevated logistics costs. Nonetheless, most analysts covering FSLR stock remain optimistic about the company’s growth potential.
First Solar seems well positioned for growth in the years ahead, given a strong backlog of future deliveries of 58.1 gigawatts, which includes orders for delivery scheduled until 2027. The company is investing up to $1.2 billion to boost the domestic production of photovoltaic (PV) solar modules to over 10 gigawatts DC (GWDC) by 2025. As part of this plan, First Solar is investing about $1.1 billion to build its fourth U.S.-based factory in Alabama, which is expected to be commissioned by 2025 and have an annual capacity of 3.5 GWDC.
What is the Price Target for First Solar?
Aside from Enphase, Kees also initiated coverage on First Solar stock with a Buy rating and a price target of $175, based on Enterprise Value (EV)/2023 EBITDA multiple of 20x. Kees pointed out that the target multiple is below the “2.1-year average of 25.7x,” which makes FSLR’s risk/reward profile more acceptable on expectations that EBITDA would rebound from 2022 lows. The analyst feels that the Street may not have fully taken into account the expected rebound in forward estimates.
Overall, the Street’s Moderate Buy consensus rating for First Solar stock is based on 12 Buys and five Holds. At $182.13, the average stock price target suggests 21.6% upside potential. FSLR stock skyrocketed nearly 72% in 2022.
Conclusion
The long-term prospects for all these three solar companies look appealing, given the growing demand for solar energy and the benefits under the Inflation Reduction Act. While Enphase and First Solar stocks outperformed Sunrun in 2022, Wall Street sees higher upside potential in Sunrun stock in 2023 following the pullback last year.
