First Solar (NASDAQ: FSLR) saw its stock price surge 73% in 2020 and SunPower (NASDAQ: SPWR) fared even better with a 400% gain. This year, however, both companies' stock prices have plateaued due to fears of inflation and a new capital gains tax proposal. The global solar energy market is expected to quadruple in value to over $220 billion by 2026 and global green initiatives continue to drive the market.
Additionally, photovoltaic (PV) prices are dropping, making solar panels more affordable. Pessimists dismiss the energy source for being non-portable, weather dependent, and having high up-front costs. With these points in mind, which is the better investment right now?
In the solar energy sector, First Solar is a force to be reckoned with. It manufactures its panels using an innovative PV tech that uses less energy, water, and semiconductor material and this helps the company's profit margins. A further aid to profitability can be found in the fact that this process isn't reliant on polysilicon, whose prices have spiked recently. As the largest solar panel manufacturer in the U.S. (44% market share), First Solar continues to outperform its competitors in both profit margins and net debt.
This discipline in business practices has netted the company nearly $2 billion in cash and an industry unheard of EPS of $0.78 last quarter. All this cash has analysts hoping that First Solar will also become the first solar energy company to offer a dividend, which will no doubt help further inflate its stock price. First Solar continues to grow by investing nearly $700 million for a new factory in Ohio that will generate 3.3 gigawatts (GW) annually, giving the company a total of 6 GW per year.
Recently, First Solar has set its sights on India, a country that is expected to account for 20% of the world's installed solar capacity by 2040. The company has invested nearly $700 million dollars for a plant to be built in Tamil Nadu and begin operations by H2 2023. The new facility's capacity is to be 3.3 GW contributing to the company's total projected output capacity of 16 GW by 2024.
Aside from the aforementioned cons of the solar energy sector, there is also the concern of heavy competition. Solar is a hot industry and newcomers are constantly popping up eager to snatch up market share. Solar panel fields also require land, a limited global resource. And finally, the last bear case comes with a sense of irony as this green sector niche uses raw materials that are both toxic for the environment and carcinogenic to humans.
SunPower recently released its Q2 results and the numbers were impressive. Year-over-year (YoY), revenue was up 42%, adjusted EBITDA rose by 650%, and debt decreased by 50%. Further, its projections for next quarter are on the up and up with revenue expected to rise 21% and EBITDA, 40%. The company added 13,000 new customers for a total of 376,000 and holds an above 50% market share in new home solar installations.
SunPower has been the number one commercial solar provider for the last three years and boasts big-name clients like IKEA, Target, Toyota, and NASA. With more and more companies pledging to become carbon net-zero in the near future, SunPower certainly stands to profit. The current Solar Investment Tax Credit is a government subsidy that covers over 25% of the cost of solar installation and continues to encourage solar adoption. Moreover, as more socially conscious millennials purchase homes, they will try to lower their carbon footprint. These tailwinds will no doubt raise SunPower's EPS from its current $0.06.
Analysts are forecasting a meager annual earnings growth of only 1.1% for the company in the near future. SunPower also has a high debt-to-equity ratio of 125.1%. And the final bear point for the company is its stock price volatility; in fact, it has been more volatile than 75% of all U.S. stocks in the last three months, generally shifting 10% up or down per week.
Both are solid companies and would be fine investments in any long-term growth portfolio, but ultimately, I'd put my money on market leader First Solar as it is more likely to realize profits from all the green energy industry tailwinds thanks to its strong business model and expansion plans.
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