The fourth-quarter results of three solar energy companies — Jinko Solar (NYSE:JKS), SunPower (NASDAQ:SPWR), and Daqo New Energy (NYSE:DQ), show that they benefited from multiple, powerful positive catalysts in Q4. These positive catalysts have helped push these solar stocks higher so far this year. In 2019, JKS stock has soared 77%, SPWR stock and DQ stock have each gained about 50%.
Moreover, the companies’ results and guidance indicate that their stocks should continue to advance as the ongoing, upbeat trends strengthen this year, boosting solar stocks. Among these many trends are stabilizing selling prices of solar energy products, continued decreases in the production costs of these products, stabilizing demand in China, the advent of cheaper batteries and higher-margin solar products, powerful demand drivers in the U.S. and demand increases in developing markets. In light of these powerful, positive trends, investors should buy Jinko Solar stock, SunPower stock, and Daqo New Energy stock.
Meanwhile, the valuations of all three solar stocks remain extraordinarily low, making their overall outlook extremely attractive.
Jinko Solar (JKS)
In Q4, Jinko’s revenue jumped 16% sequentially and 21.5% year-over-year. Its gross margin rose to 14.7%, excluding payments from Chinese governments, up from 12.8% in Q3.
Going forward, Jinko expects to benefit from new Chinese subsidies for both utility and residential projects. Additionally, the company is optimistic that Beijing will make more of its subsidy payments on time than in the past. And in comparison with the past, a higher percentage of solar projects in China will be cheaper than other types of energy, such as coal and natural gas, without subsidies JKS added.
In the U.S., JinkoSolar is experiencing strong demand because of a recently extended 30% investment tax credit for solar projects. In order to qualify for the tax credit, projects must be launched by 2020, so developers are looking to get their projects off the ground quickly, JKS reported. The company is also seeing strong demand from Europe and developing countries in Southeast Asia, the Middle East, and South America. Given all of the strong demand and supportive government policies, JKS expects to ship 30% more modules this year than in 2018.
And importantly, due partly to strong demand for its premium solar products, JKS expects its average selling prices to be stable this year. A 30% increase in module sales, along with flat average sales prices, should produce very good results for JKS in 2019, leading to continued gains for JKS stock.
The forward price-to-earnings ratio of JKS stock, based on analysts’ consensus 2019 EPS estimate, is just 9.6, while the price/book ratio of JKS stock is just 0.65.
SunPower’s Q4 results were mostly weaker compared with the same period a year earlier, but they were generally much better than the company’s Q3 earnings. Moreover, SPWR identified multiple, strong positive catalysts that should boost the company’s results and SPWR stock in the near, medium and longer terms.
SPWR’s Q4 revenue was $525.4 million, versus $443.4 million in Q3 and $824 million during the same period a year earlier. Its net loss per share of SunPower stock came in at $1.12, versus 64 cents in Q3 and $4.10 a year earlier. The company’s Q4 gross margin was 6.9%, versus 4.7% in Q3 and 11.9% during the year-earlier period. Its EBITDA, excluding certain items, was $13.6 million in Q4, versus $6.76 million in Q3 and $100.3 million during the year-earlier quarter. Overall bookings reached record levels in Q4.
Importantly, SPWR’s net debt fell to $590 million from $1.17 billion after the company sold its power-plant unit and its residential-lease portfolio. Also importantly, the number of the company’s deployments in North American houses surged 15% last year, and its bookings with businesses hit record levels in Q4.
SPWR expects positive trends to continue, driven by share gains in houses and businesses as it produces more lower-cost solar panels. Also likely to help SPWR stock a great deal going forward are the California mandate that all new homes include solar energy panels, since the company is “by far” the market share leader in that state, and the company’s exemptions from America’s solar tariffs. Finally, SPWR expects to benefit over the longer term from selling its energy-storage solutions and other services to new and existing clients. In the second half of 2019, SPWR expects to report break-even operating cash flow, and it says that it will be well-positioned “for sustainable future profits” heading into 2020.
The price-sales ratio of SPWR stock is just 0.6.
Daqo New Energy (DQ)
Like SunPower, most of polysilicon-producer Daqo’s Q4 results improved versus Q3 but were weaker than its Q4 results a year earlier. Daqo’s Q4 EBITDA from continuing operations came in at $29.5 million, versus $14.8 million in Q3 and $76.3 million during the same period a year earlier. Its top line was $75.6 million in Q4, versus $67.4 million in Q3 and $119 million during the year-earlier period.
But interestingly, Daqo sold 7 billion tons of polysilicon in Q4, up from 6.2 billion in Q3 and just 4.7 billion during the year earlier period. Furthermore, its polysilicon production cost, excluding depreciation, was just $6.64 per kilogram, down from $7.12 during Q3 and $7.64 during the same period a year earlier.
Like JKS, DQ expects to sell a higher percentage of premium products this year, and it anticipates that strong demand, driven by more favorable Chinese policies, cheaper solar module prices, and powerful overseas demand, will help keep the selling prices of its polysilicon little changed.
Additionally, DQ says that many of its competitors whose production prices are not as low are being pushed out of business, keeping supply expansion under control. So DQ and DQ stock, like JKS, is benefiting from the combination of lower production prices, stable prices, and strengthening demand.
The forward P/E ratio of DQ stock, based on analysts’ consensus 2019 EPS estimate, is just four, while the price/book ratio of DQ stock is below one.
As of this writing, Larry Ramer owned shares of JKS stock, SPWR stock, and DQ stock.