The year 2023 has proven to be a challenging one for solar stocks, with the Invesco Solar ETF (TAN) experiencing a significant decline of nearly 31%. However, as the Federal Reserve pivots towards potential rate cuts in 2023 to combat inflation, the outlook for the solar sector is beginning to shine brighter. In this article, we will explore the recent performance of solar stocks, the Federal Reserve’s impact on the industry, and the analysts’ forecasts for a solar stock recovery in 2024.
A Tough Year for Solar Stocks
In 2023, solar stocks faced a tough road, as reflected in the performance of the Invesco Solar ETF (TAN). The ETF saw a sharp drop of nearly 31% over the course of the year, marking one of its worst performances since 2016 when it lost a staggering 46%. Within the ETF, only a handful of stocks managed to stay in the green, with 11 of them witnessing declines of over 45%. The most notable loser among them was SunPower, which endured a substantial drop of nearly 77% for the year.
The Federal Reserve’s Impact
One of the significant factors contributing to the challenging environment for solar stocks in 2023 was the Federal Reserve’s decision to raise interest rates as part of its strategy to combat inflation. Higher interest rates can make financing for solar projects more expensive and less attractive for investors, thus putting pressure on solar stocks.
However, a ray of hope emerged as the Federal Reserve signaled its intent to potentially implement three rate cuts in 2023. This pivot in monetary policy has shifted the outlook for the solar sector, hinting at a brighter future.
2024: A Year of Renewed Optimism
Looking ahead to 2024, industry analysts are increasingly optimistic about the prospects for solar stocks. They anticipate a rebound in the sector, with specific segments poised for growth.
Piper Sandler analyst Kashy Harrison has upgraded Sunnova and Sunrun to overweight from neutral. His optimistic outlook is reflected in his price target of $26 for Sunnova, a significant increase from the previous $13, implying nearly 100% upside potential. Similarly, he has raised his target on Sunrun to $31 from $15, forecasting a substantial 72% upside. Harrison points to the potential for equity appreciation in these companies, given the sensitivity of their asset valuations to interest rates.
Jefferies’ Bullish Outlook
Jefferies, another major financial firm, shares the optimism for solar stocks in 2024. The firm advises its clients to “climb aboard the solar coaster,” indicating a positive sentiment towards the sector. Jefferies particularly favors utility companies with scale, such as First Solar. According to analyst Dushyant Ailani of Jefferies, exposure to utility-scale solar projects provides manufacturers with firm backlogs, cash flowThe cash flow statement provides a detailed overview of the cash inflows and outflows of a company over a specified period of time. It includes cash received from operations, inves... More certainty, and the advantage of scale compared to residential solar.
Bottom-line: While 2023 may have been a challenging year for solar stocks, the outlook for 2024 appears to be much more optimistic. The Federal Reserve’s pivot towards potential rate cuts has breathed new life into the industry, and analysts are predicting a rebound in solar stocks. Investors are keeping a close eye on companies like Sunnova, Sunrun, and First Solar, which are expected to benefit from the changing interest rate environment. As we enter the new year, the solar sector seems poised for a period of recovery and growth, offering potential opportunities for those who are bullish on renewable energy.
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