2 Solar Companies That Could Disappoint During The Second Half Of 2017

Axiom Capital's celebrated solar stock analyst Gordon Johnson has a word of caution for solar stock investors in the wake of weak U.S. rooftop solar installations data for June. The analyst thinks rooftop solar companies such as Sunrun Inc (NASDAQ: RUN) and Vivint Solar Inc (NYSE: VSLR) could disappoint in the second half of 2017.

Citing U.S. Energy Information Administration's updated installation data for solar photovoltaic modules for June, Johnson noted that module prices surged up in June due to section 201 fears.

Delving on section 201, Johnson said fearing Trump administration's section 201 investigation, Independent Power Producers, or IPPs, have begun stocking solar panels in anticipation of a potential hike in imported module prices to $0.78/watt in late 2017 or early 2018 (see Johnson's track record here).

The analyst pointed to bearish analysts' view that this would be a headwind particularly for rooftop solar manufacturers, as they source mostly from China, Consequently, their costs shot higher from 35 cents per watt to 45 cents per watt.

The analyst also noted that U.S. solar installations fell 4.6 percent year over year and were 31.9 percent lower than a month-ago. Specifically, the analyst said rooftop solar installations were the worst hit, as they fell 29.7 percent year over year and 20.5 percent month over month.

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On the other hand, utility installations, though declining 38.4 percent month over month, rose 29.5 percent year over year, the analyst said.

Despite the development, the analyst noted that most solar industry stocks rallied along with rooftop solar companies.

Going by the 10 percent drop in U.S. rooftop installations in the second half of 2016, Johnson said he sees the potential for the back half of 2017 to disappoint, as it relates to the total addressable opportunity for both Sunrun and Vivint Solar.

"The key being … U.S. module prices are being artificially boosted by a temporary U.S. bull market due to the Trump administration's section 201 investigation, meaning the economics for rooftop solar are being artificially depressed," Johnson said.

Concluding, Johnson said the Street estimate for second half 2017 top-line growth of 21.1 percent for Sunrun and 13.9 percent for Vivint Solar might be at risk.