Goldman Sachs analysts shuffled their ratings for solar stocks in a note to clients Monday, upgrading Sunnova Energy International Inc . (NYSE:NOVA) to Buy and Canadian Solar (NASDAQ:CSIQ) to Neutral and downgrading shares of SolarEdge Technologies (NASDAQ:SEDG) and SunPower (NASDAQ:SPWR) to Sell.
Analysts told investors that on the back of what they see as an improving growth backdrop, they expect sector-specific fundamentals will be more in focus heading into 2024, following a year in which the group "significantly underperformed and the macro was a dominant theme throughout."
"While we continue to favor utility-scale vs. resi exposure more broadly - given attractive valuation and leverage to potential IRA upside - we do see a growing case for a US resi solar recovery moving thru ‘24," analysts wrote.
The analysts described NOVA as a residential recovery story with "attractive end markets set to inflect faster."
"We upgrade NOVA to Buy on the back of what we expect to be an US resi solar recovery moving through ‘24, that in NOVA’s case could see some acceleration owing to high non-CA mix and share gain potential," added the analysts. "Moreover, the company appears to have capital needs addressed in the near term, and we expect this overhang to be less of a headwind for the stock vs. last year."
SEDG was cut to Sell as the EU recovery is still in the early innings and margin uncertainty leaves more downside risk to EPS.
"We downgrade SEDG to Sell as we believe a challenging backdrop in EU solar presents downside risk to consensus estimates in the near-to-medium term while SEDG’s ability to drive margin expansion remains uncertain, both from a timing and magnitude perspective given structural mix and cost shifts," explained the analysts.
SPWR was lowered to Sell as the company works through a tough backdrop of uncertain supply chain, financing and operational challenges, according to Goldman Sachs. "Net/net, we see heightened risk to a further slowdown in growth and EBITDA generation moving through the next few quarters and expect less of a tailwind," they wrote.
For CSIQ, the firm now sees a more balanced risk-reward profile, which now warrants a more Neutral stance on the stock.