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US, China Reach Partial Trade Truce: Solar Stocks in Spotlight

Aparajita Dutta

Stock markets across the globe breathed a sigh of relief after progress in trade negotiations between the United States and China on Dec 12, after almost two years of dispute. The U.S. solar industry, which has been witnessing uncertainty following Trump’s imposition of the import tariff on solar products, witnessed an upside post the latest development.

Notably, the solar industry was up 4% on Dec 12, after governments of the two most powerful economies promised to purchase in abundance from each other.

Impact of Tariff on Solar

Imposition of the import tariff on solar products dealt a major blow to the U.S. solar industry. Per a recent report by Solar Energy Industries Association (SEIA), tariffs on imported solar cells and modules have caused 10.5 gigawatts (GW) of solar installations to be cancelled, enough to power 1.8 million homes and reduce 26 million metric tons of carbon emissions. Sadly, solar tariffs are costing the United States more than $10.5 million per day in unrealized economic activity.

Details of the Recent Trade Truce

Per major media reports, President Trump announced cancellation of plans to impose new tariffs on $160 billion worth of Chinese imports as part of the modest interim agreement. The United States has also promised to reduce existing import taxes on about $112 billion in Chinese goods from 15% to 7.5%.  In return, per Trump’s tweet, China has agreed to "massive'' purchases of American farm and manufactured products as part of a so-called Phase 1 deal.

In fact, in the next two years, Beijing has committed to buying an extra $200 billion in U.S. agricultural, energy and manufactured goods.

Here’s How the Trade Deal Will Help Solar

Recovering from last year’s disappointing performance, U.S. solar industry has been in the headlines in 2019.  Thanks to the robust increase in solar installations coupled with unexpected rapid growth in the states of Florida and Texas, U.S. solar stocks have rallied 66.4% year to date.  

Rapidly increasing corporate investments in solar energy have been boosting the U.S. solar industry lately. New solar project announcements have led Wood Mackenzie to increase its forecast for 2020 and 2021 utility-scale installations by 2.5 GW and by 1 GW respectively.

In addition to the aforementioned catalysts, the latest trade truce should boost U.S. solar stocks’ growth. This is because phase one of the trade deal brings possible dilution in import tariff on solar cells and modules from China, along with increase in purchase of U.S. solar products by China in retaliation.

Solar Stocks to Gain

U.S.-based solar stocks along with international solar companies are expected to gain following the latest trade agreement between the two countries and further progress in the coming years. We are focusing on a few solar stocks, carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Further, these companies’ shares gained following the trade truce news on Dec 12.

Canadian Solar CSIQ: This Canada-based solar panel maker has surpassed the Zacks Consensus Estimate for earnings in the last four quarters, with the average being 82.23%. It boasts a solid long-term earnings growth rate of 32%. The company’s shares gained 2.5% on the day.

First Solar FSLR: For this U.S.-based solar module manufacturer, the Zacks Consensus Estimate for current-year earnings indicates solid year-over-year improvement of 79.4%. It boasts a solid long-term earnings growth estimate of 23.1%. The company’s shares gained 2% in response to the news.

JinkoSolar Holdings JKS: For this Chinese solar module manufacturer, the Zacks Consensus Estimate for current-year earnings indicates solid year-over-year improvement of 51.2%. It boasts a solid long-term earnings growth rate of 20%. The company’s shares gained 1.8% on the day.

Enphase Energy ENPH: For this U.S.-based solar inverter manufacturer, the Zacks Consensus Estimate for current-year earnings indicates solid year-over-year improvement of 790%. It surpassed the Zacks Consensus Estimate for earnings in the last four quarters, with average surprise of 21.28%.  The company’s shares gained 1.7%.

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Canadian Solar Inc. (CSIQ) : Free Stock Analysis Report
 
First Solar, Inc. (FSLR) : Free Stock Analysis Report
 
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