SolarEdge, SunPower and Sunworks see strong demand in Q3

Solar stocks received a major boost on the back of the Inflation Reduction Act. That tailwind has helped to drive higher demand for companies like SunPower, Sunworks and SolarEdge Technologies, especially amid the energy crisis.

– SolarEdge, SunPower and Sunworks see strong demand for products

– SolarEdge plans to establish “US manufacturing capability” in light of the Inflation Reduction Act

– The Strategy Shares Halt Climate Change ETF offers exposure to all three solar companies

Solar stocks SunPower [SPWR], SolarEdge Technologies [SEDG] and Sunworks [SUNW] are all down year-to-date, despite the global energy crisis triggered by Russia's invasion of Ukraine and cutting gas supplies to Europe highlighting the importance of renewable energy sources. Investors will be hoping earnings can fuel a recovery.

SolarEdge was the first of the three companies to deliver its results this week. It reported earnings per share of $0.91 on revenue of $836.7m, up 59% from $526.4m reported for Q3 2021, which beat analyst expectations.

SunPower was next up, beating both top and bottom line estimates. Earnings per share were $0.13 and revenue was $475.7m, up 67% year-over-year. Sunworks reported revenue of $40.7m for the three months to the end of September, up 30.4% year-over-year. Although earnings per share were a loss of $0.16, this was an improvement on the loss of $0.24 in the year-ago quarter and was in line with forecasts.

All three stocks were climbing higher on Tuesday 8 November. The SolarEdge share price closed up 19% higher, while the SunPower share price climbed 10.85%. The Sunworks share price gained throughout the day, but it closed down 1%.  

Revenue boost despite macro headwinds

SolarEdge’s revenue growth was “driven by strong momentum in Europe,” CEO Zvi Lando said on the earnings call. Sales in the region jumped 42% sequentially and 90% from the year-ago quarter. Its largest market on the continent was Germany, where revenue grew by 125%. The company shipped 6.1 million optimisers and 256,000 inverters globally, a growth rate of 16% over the previous quarter.

SunPower broke records for customer growth in the third quarter. Financial bookings increased rapidly, by a rate of 49% in September alone, and meant it achieved its 2022 run-rate goal three months early. It also reported a 120% year-over-year increase in its Power Purchase Agreements (PPAs), which it attributed to the passage of the Inflation Reduction Act.

Sunworks CEO Gaylon Morris said the company was able to capitalise “on strong underlying demand for our integrated solar solutions”. He suggested that order rates for residential rooftop solar installations have accelerated largely due to rising household electricity bills.

Inflation Reduction Act should fuel growth

Things should look brighter for the solar industry in 2023. The Inflation Reduction Act signed by President Biden in August includes long-term tax credits to boost domestic solar manufacturing in the US and end reliance on solar panels and parts made in China.

Research by the Solar Energy Industries Association and Wood Mackenzie has concluded that the US solar and renewables will now grow 40% more over the next five years than previously forecast. That growth is likely to be a win for solar companies like SolarEdge, SunPower and Sunworks.

“[I]n light of the recent IRA legislation and the increased demand from the US market, we are aiming to establish manufacturing capability in the United States within 2023 and are in active planning and site selection process,” Lando said on the earnings call for Solar Edge, which is headquarted in Israel.

Pol Lezcano, a solar industry analyst at research firm BloombergNEF, told Investor's Business Daily that the tax credits promised by the legislation will be “like pouring gasoline on a fire”.

Funds in focus: Global X Solar ETF

SolarEdge and SunPower are both held by the Global X Solar ETF [RAYS], with weightings of 5.23% and 0.82% respectively. The fund is down 9.3% year-to-date, but up 3.75% in the past week and up 7.7% in the past month.

SolarEdge is the third biggest holding in the Invesco Solar ETF [TAN] and has been allocated 7.2% of the portfolio. SunPower has a weighting of 1.74%. The fund is down 4% year-to-date, but up 3% in the past week and up 4% in the past month.

Sunworks is held by eight ETFs, and has its largest allocation in the Strategy Shares Halt Climate Change ETF [NZRO] at 0.21% as of 9 November. SolarEdge and SunPower are also in the fund, with respective weightings of 0.88% and 0.83%. Since the fund launched on 11 January, it is down 18.1%. However, it has made modest gains of 3.8% over the past month.