Solar stocks have suffered, but these two names are buys, Guggenheim says

Published Thu, Jan 13 20227:59 AM EST

Following recent weakness for solar stocks broadly, Guggenheim said that inverter makers SolarEdge and Enphase are now attractive buying opportunities. The firm upgraded each stock to a buy rating Thursday, sending shares higher during premarket trading. "Although challenges remain, we believe that concerns regarding high valuations, high consensus expectations and potential negative news ... have largely dissipated," the firm wrote in a note to clients. Both stocks added 2% during premarket trading Thursday. Over the last year shares of SolarEdge have plunged about 25% while Enphase slid 28% amid several headwinds for the group, including policy uncertainty, supply chain issues and uncertain trade decisions. Additionally, after stellar performance in 2020, concerns over stretched valuations weighed on the sector. But Guggenheim analyst Joseph Osha said that ongoing demand and strong pricing for energy storage products should boost each company's stock. On the policy front, he said that while President Joe Biden's Build Back Better plan might not pass in its current form, renewable-focused legislation could still be enacted. This includes tax credits, which were most recently extended under the Trump administration. "At this point, stock valuations seem to reflect low expectations for any progress on policy," he said. Osha added that following 2021's underperformance, which saw the Invesco Solar ETF fall 25%, investor expectations have declined. "Where's the additional bad news at this point?" he wrote, noting that there's now some clarity on the policy front. "The problems that remain, notably supply chain and material price inflation, are less of a problem for residential solar than for utility-scale business," he said. Osha introduced a $329 price target for SolarEdge, which is 26% above where the stock closed on Wednesday. He downgraded the company to a neutral rating on Oct. 19, and shares have declined about 15% since. The company does have exposure to utility-scale solar, which Osha is less optimistic about thanks to rising costs. But he said the company's "residential business can propel the stock higher from here, especially if the company gets its storage offerings on track in 2022." When it comes to Enphase, the firm sees shares jumping about 43% to $213. — CNBC's Michael Bloom contributed reporting.

Workers lift a solar panel onto a roof during a residential solar installation in Scripps Ranch, San Diego, California, U.S. October 14, 2016. Picture taken October 14, 2016.

Mike Blake | Reuters

Following recent weakness for solar stocks broadly, Guggenheim said that inverter makers SolarEdge and Enphase are now attractive buying opportunities.