The market for solar power electricity is shining as global power production continues its pivot towards renewable energy, away from fossil fuel.
While solar remains a small portion of total electricity generation in the U.S., it is the fastest-growing source of electricity. The sun is poised to become the world’s largest source of electricity by 2050, per the International Energy Agency (IEA). The U.S. is at the forefront of solar adoption in the developed world, with solar energy projected to account for 58% of new electricity generation in 2024, according to the Department of Energy.
As improving tech, falling costs and sustained policy support continue to fuel robust growth in renewables, the following solar stocks are well-positioned to capitalize on this momentum.
Solaredge Technologies SEDG
Analyst: Brett Castelli
- Fair Value Estimate: USD 53.00
- Price/Fair Value: 0.63
- Economic Moat: None
- Capital Allocation Rating: Standard
- Morningstar Rating: 4 stars
SolarEdge (SEDG) is one of the largest global solar inverter manufacturers, based on revenue. It designs, develops, and sells direct current optimized inverter systems for solar photovoltaic installations.
SolarEdge’s offerings comprise power optimizers, inverters, and cloud-based monitoring platform, addressing a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.
“The company’s DC optimizer is prevalent in rooftop applications, as it provides functionality not found in a string inverter, but at a lower price than microinverters,” says a Morningstar equity report.
Initially targeting the residential market, SolarEdge has expanded its product suite over the years to the commercial market and, more recently, the utility-scale market.
In recent years, the company has also expanded beyond inverters to include energy storage and utility-scale solar markets.
“While these new markets offer the potential to meaningfully increase its [total addressable market] TAM, they also carry elevated execution risk,” cautions Castelli, adding that the new market segments have lower long-term margin potential relative to the company’s core solar inverter product offering.
That said, SolarEdge has proved itself as a market leader achieving consistent profitability in the distributed solar inverter market. “Similarly, we expect the company's storage efforts to be successful given the close link between inverters and storage,” says Castelli, who puts the stock’s fair value at US$53, and projects solar volumes to experience low teens annual growth in the long term, following sharp declines in 2024 due to excess inventories.
Enphase Energy ENPH
Analyst: Brett Castelli
- Fair Value Estimate: USD 85.00
- Price/Fair Value: 1.27
- Economic Moat: None
- Capital Allocation Rating: Exemplary
- Morningstar Rating: 2 stars
Enphase Energy (ENPH), a leading energy tech firm, provides smart, user-friendly solutions for managing solar generation, storage, and communication on a single platform. Its microinverter technology, focused on the rooftop solar market, offers a fully integrated solar-plus-storage solution. Most of its revenue comes from the United States.
Enphase is the world leader in microinverter technology, often referred to as the brains of a solar energy system. It converts direct current produced by solar panels into alternating current used by households and grids, and optimizes energy production.
More recently, the energy firm has been transitioning from a microinverter company to selling home energy solutions. “Enphase targets to create a one-stop shop for solar installers: microinverters, energy storage, electric vehicle charging, and digital services for installers and homeowners,” says a Morningstar equity report, adding that the strategy leverages its existing position with installers to expand its total addressable market while maintaining the company’s core end market of distributed generation.
Additionally, the company aims to diversify its end markets across different regions and segments, having rapidly grown its international business in recent years. “International accounted for approximately 35% of revenue in 2023, up from 20% in 2021,” notes Morningstar equity analyst Brett Castelli, who pegs the stock’s fair value at US$85.
In addition to taking measures to consolidate its dominance domestically, the company has been expanding its global footprint, particularly in Europe, Australia, and emerging markets.
Sunrun RUN
Analyst: Brett Castelli
- Fair Value Estimate: USD 14.00
- Price/Fair Value: 0.97
- Economic Moat: None
- Capital Allocation Rating: Standard
- Morningstar Rating: 3 stars
Sunrun (RUN) is a leading U.S. provider of residential solar, storage and energy services. It designs, develops, installs, sells, and maintains home solar power systems. The company also sells solar energy systems and products, including panels and racking, and provides solar leads generated to customers.
As of early 2023, the company had direct operations in 22 U.S. states and territories and was the U.S. residential solar market leader with high-teens market share.
In the long term, Sunrun aims to evolve into a provider of whole-home electrification rather than focusing solely on home solar. “This would include opportunities such as home batteries, electric vehicle charging, and grid services,” says a Morningstar equity report, adding that Sunrun was the largest installer with 10%-15% market share.
With the acquisition of Lunar Energy, a solar inverter and battery solution company, Sunrun has expanded into proprietary products, to which it has historically taken an agnostic approach.
Sunrun’s leadership in leases and power purchase agreements (PPAs) remains its strongest competitive advantage. “Sunrun is the unquestioned leader in the lease and PPA market with approximately 70% share in the first half of 2021,” says Castelli, citing Wood Mackenzie data.
Overall, though, the company doesn’t merit a moat since the direct-to-consumer business does not possess any competitive advantage, cautions Castelli, who puts the stock’s fair value at US$14.
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