What do rate cuts, the election mean for solar energy stocks?

Mizuho Americas director of clean energy equity research Maheep Manley joins Julie Hyman and Josh Lipton on Market Domination to discuss what next week's expected interest rate cut and the upcoming presidential election mean for the solar energy sector.

“There's a nice transition from interest rates to solar,” Manley says explaining that “we've seen this industry react to any positive news on interest rates” and “we'll continue to see that going forward.”

The analyst tells Yahoo Finance that most companies in the solar industry have a high debt-to-capital ratio, so there’s “a lot of upside there” if the Federal Reserve does in fact opt to cut rates. Solar companies “generally tend to do better in a lower interest rate environment,” he adds.

Solar stocks came into focus after the presidential debate on Tuesday. A victory for Vice President Kamala Harris in November could “keep the status quo of the Inflation Reduction Act,” which includes tax incentives for clean energy.

The analyst highlights that First Solar is “the biggest beneficiary” of current tax incentives as “more than 60% of their EPS in our estimates for 2025 would come from these incentives from the Inflation Reduction Act (IRA).

Manley adds, “I don't think it'll be very bad news if Republicans or Trump come on in,” with “at worst” a 20% or 25% impact on solar stocks.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Naomi Buchanan.

Video transcript

Next week.

The FOM C's interest rate decision for September.

Wall Street.

We were closely watching to see if the Fed does go by 20 cut by 25 or maybe 50.

But how will that affect a rate sensitive industry like solar?

For more on how investors should be looking at the space we're bringing in Mahe, Mani Mizuho, America's director, Clean Energy Equity research.

Good to see you.

So So let's start right there.

Obviously, all attention is on the Fed next week.

Mahe.

And there's this debate we had on this show between very smart people.

Whether it's gonna be 25 or a super size 50.

How does that event may?

How do how does that impact your coverage, universe?

Uh, hi, Josh.

And hi, Julie.

And definitely there's a nice transition from interest rates to solar.

Right?

Uh uh, it is, uh, this industry is very level.

Uh, we've seen this industry react to any positive news on interest rates, uh, the last year, and we'll continue to see that going forward.

Um, most of these companies do have almost 7060 70% less or debt to capital ratio.

There's definitely a lot of upside there and in the two things to think about it.

One is obviously the fundamentals that helps reduce the interest expense going forward, but also in valuation.

You know, these industries generally get the growth multiples, which generally trying to do better in lower interest rate environments and the stocks being evaluations.

The stocks, at least as a group, have really come down quite a bit.

Um, something else that is an upcoming potential catalyst is the US presidential election.

At least it's perceived as such.

We saw these stocks rally following the presidential debate and again this perception that if Kamala Harris' chances to become president are higher, she could potentially be more friendly to the industry.

Do you think that that view is the correct one?

No, absolutely, and not just friendly to keep the status quo of the Inflation Reduction Act right?

And funny enough, I was at a solar trade show earlier this week.

On Tuesday evening after, you know, doing our meetings, everyone was glued on their TVs just looking at the debate, and I think after the later in the evening and the drinks and then everyone kind of sighed and said, Oh, Yeah.

Sure.

Looks like Kamla is uh uh, did slightly better.

So that bodes well for all the renewable policies.

But also trump talks about, uh uh, President Trump talks about, uh uh, he said he likes utility Solar.

He had caveats up that nonetheless, but still, he said that.

And he did say he wants jobs over here, which also bodes well for most of our companies over here.

So I don't think it'll be like a very bad news if Republicans or Trump come on in.

I think we've said in our notes, it's maybe it was down 20 25% impact to our stocks, but, uh, definitely, uh, the the business case or the status quo will be maintained under Kamala Harris mahi.

Let's get to some pics.

So, you know, I look at your coverage universe.

Few different app forms.

Nha sun run, solar edge sonova.

What about first solar, though You're on the sidelines on that name.

How come and and what do you need to see before getting more bullish?

Yeah, they are the biggest beneficiary of the inflation reduction act.

Uh uh.

They do get a lot of their earnings from, uh these incentives, More than 60% of the EPS, uh, in our estimates for 2025 would come from, uh, these incentives from the Inflation Reduction Act.

So is there to those incentives it's a non zero risk, so we need to take that into account.

And on top of that, we could see potential competition in the US later this year because of near shoring, which will take two years to materialise.

It takes at least two years to set up solar factories in the US Um, so I think that's the bigger question for investors.

I think the near term of the next 23 years is already priced in.

The question is, if competition comes up in the US with new US factories, what does that do to for solar?

And so we on the sidelines on that, and we'll see what changes after the elections or potentially any new tariffs which US imports against other countries.

Me, I'm also curious about US penetration and adoption.

You know, we talk a lot on the show about the waning demand for electric vehicles.

It feels like solar is sort of in a similar vein, but what what have those adoption trends look like?

Is it still and is it still as popular?

I guess with US consumers it it is as if you look at the penetration rates for residential solar with somewhere around 5% of rooftops of eligible rooftops are penetrated with solar.

How fast this number grows.

It depends on interest rates because most of the solar is bought on financing.

But we think we can easily get to 10 to 12% later this decade.

Uh, the challenges become in some states when it grows more than 25 30% as when issues on, uh uh which came up in California recently on, you know, the non solar customer subsidising the solar customer comes up, but I think that that's, uh, uh, somewhat of an issue later this decade or next decade.