Three American Solar Companies NOT Named SunEdison (SUNE)

Joel Anderson  |

The collapse of SunEdison (SUNE) over the last year, one of the nation’s leading solar companies, has shaken the domestic solar industry quite a bit. Of course, any time a company worth more than $10 billion loses 98% of its value and teeters on the verge of bankruptcy in just one calendar year, it’s bound to make people take a closer look at its peers. Doubly so when it’s in an industry made up largely of small-cap companies and one where investors only seem to venture when they have a healthy appetite for risk.

However, regardless of what’s happening with specific companies, the state of the solar industry as a whole appears relatively strong. The projections for ongoing growth in installations remain robust, the investment tax credit (ITC) was extended until 2020, and the recent Paris climate accord would seem to indicate government support for continued international growth in solar capacity.

Plus, for those feeling patriotic, it should be noted that American solar makers are among the strongest in the world, locked in a trade war with China for dominance in the segment. While the slow death of coal appears to have an adverse effect on certain American coal communities, the potential for economic growth at home driven by global growth in solar could more than counterbalance that.

Certainly, SunEdison demonstrates pretty clearly why picking horses in even the most successful growth industries can go horribly wrong, but that likely won’t dissuade those investors willing to take chances for a shot at big returns. So, here’s a look at three American solar companies to consider as alternatives to the perhaps soon-to-be defunct SunEdison.

First Solar (FSLR)

Market Cap: $7.05 billion

With the demise (or, knock on wood, very near demise) of SunEdison, the obvious gold standard for global solar companies becomes First Solar, assuming it wasn’t already. The company is focused largely on big, utility-scale projects, eschewing the residential and C&I projects that have been the focus for a lot of other solar companies. The results? Well, while other industry leaders like SunEdison and SolarCity (more on them later) have been in a precipitous decline over the last twelve months, losing 97.66% and 55.21% respectively, First Solar has gained 16.26% over the same period. That’s during a period where the S&P 500 was down slightly.

In many ways, First Solar seems to be the anti-SunEdison. It has a strong balance sheet with a large cash store that reduces its cost of capital and could allow it to snap up assets when the price is right, it’s offering utility projects at costs that make solar competitive with traditional fossil fuels, its joint yieldco with SunPower, 8point3 Energy Partners (CAFD), appears to be quite healthy, and it recently broke the efficiency record for solar panels earlier this month.

On the whole, First Solar appears to be succeeding in precisely the way SunEdison failed. While revenues appear to have flattened some in recent years, the company has also swung into profitability since 2013, clearing $500 million in net income just last year.

SolarCity (SCTY)

Market Cap: $2.25 billion

If there’s one company that’s poised to go the same way as SunEdison, it’s likely SolarCity, a company that has followed more of the highly-leveraged, rapidly-expanding model that SunEdison took much too far. SolarCity features a troublingly high debt-to-equity ratio in addition to troubling low quick and current ratios. The company has been expanding its services rapidly, including a massive new plant to build its own solar panels in Buffalo.

That said, SolarCity certainly doesn’t appear to be in quite as bad a shape as SunEdison. If anything, the company could act as a bellwether for the industry in terms of just how far things can be pushed without winding up in a SunEdison situation. The company has suffered through headwinds in the residential market, including a ruling in Nevada on net metering that serves as a major setback for the industry there.

However, SolarCity appears to be branching out to reduce its exposure there, including big gains in the commercial & industrial (C&I) space. The recent announcement of a deal with Whole Foods (WFM) to retrofit some 100 stores with solar panels in a perfect example of the potential in this space, where chains with lots of empty roofspace can make much bigger, more far-reaching deals than are available in the residential market.

On the whole, SolarCity clearly represents a much bigger risk than First Solar, but it’s also a company with a lot of long-term upside if it can keep growing at a pace that will keep its debt load from crushing it. Particularly when you consider the enormous potential for synergy with Tesla (TSLA) and its battery technology, SolarCity’s current problems could be a distant memory a decade from now.

SunPower (SPWR)

Market Cap: $3.17 billion

Swinging back towards the First Solar mold, SunPower is a company that is working in the more stable utility-scale markets and maintaining a much more conservative balance sheet. In fact, the company’s partnership with First Solar in forming a yieldco may be an indication of their similarities.

SunPower also has a lot going for it. The company operates in the commercial and residential markets in addition to its utility-scale projects. The company’s income statements don’t look quite so sparkly but they are expected to swing into a slight profit by GAAP standards in 2016. There’s also the consideration to be made that GAAP standards are actually a touch to conservative and fail to account for the sales made to the yieldco, 8point3 Energy Partners, because of SunPower’s stake in that company. If you work with a loser set of accounting principles that acknowledges those sales, the company appears to have a P/E ratio just north of 12 and a relatively strong outlook.

All told, SunPower has a global pipeline in excess of 14GW, is anticipating 2GW of that to be finished in 2016, and appears to have a chance to seriously challenge the major players in the residential market through its superior technology. The company, like First Solar, appears to have rooted its business model in something a bit firmer than some of its competitors, making it a seemingly safer bet than some of the other options out there.

SunEdison Should Make Investors Wary, but Not Afraid

Anytime you watch a company as large and as highly touted as SunEdison go off of a cliff like it did, it starts to make you wonder. It should. If a $10 billion company with a raft of analysts offering up a positive outlook can be worth less than $200 million and teetering on bankruptcy in the course of a single year, what does that really mean about the stability of any company in that industry?

However, while SunEdison’s tale of woe should certainly make any investor reconsider just how much faith can be placed in highly leveraged solar companies expanding rapidly, it also doesn’t mean that every solar company is made the same. In fact, there are plenty of American solar companies that warrant a long look. Maybe SolarCity and its aggressive, leveraged strategy isn’t your speed anymore, but that shouldn’t also spill over into a company like First Solar with its solid balance sheet and robust pipeline.

These stocks could clearly go either way, and investing in a single company is always risky, but the projections for growth in the solar industry should certainly make any investor at least consider whether they want to start looking at American solar makers as a piece of their portfolio.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
SPWR SunPower Corporation 13.57 -0.17 -1.24 2,283,324 Trade
SCTY SolarCity Corporation n/a n/a n/a 0 Trade
FSLR First Solar Inc. 63.87 0.79 1.25 738,298 Trade
SUNE SunEdison n/a n/a n/a 0

Comments

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     

INTERVIEW: CEO Steve Stanulis - Stanulis Films

Equities.com's Sam Mitchell interviewing CEO Steve Stanulis of Stanulis Films.