Fuel cell, EV and solar stocks rally as climate bill makes ‘alternative’ energy more ‘in the money’

Shares of solar, elective vehicle and fuel cell companies all rallied Monday, after the Senate approved what J.P. Morgan analyst Mark Strouse called “the largest policy change in U.S. history” to accelerate the transition away from fossil fuels.

The bill, named the Inflation Reduction Act, provides billions of dollars for clean and renewable energy production and use incentives and offers tax rebates for buying new and used electric vehicles. It moves to the House of Representatives, which is planning to return Friday to vote on the bill. Read more about the Inflation Reduction Act’s rebates and tax credits.

“We view the Inflation Reduction Act as the largest policy change in U.S. history to accelerate growth in what we have viewed as an already inevitable energy transition to renewables,” J.P. Morgan’s Strouse wrote in a note to clients.

The iShares Global Clean Energy exchange-traded fund
ICLN,
+1.16%

advanced 0.9% and the Invesco Solar ETF
TAN,
+1.31%

rose 1.2%, to outperform by a wide margin the S&P 500 index’s
SPX,
+1.73%

0.3% gain.

Strouse raised his stock price targets and estimates for the alternative energy sector. Although the stocks in the sector have already rallied since the bill was announced on July 27, Strouse believes “further upside” remains as investors had expressed some uncertainty over whether it would be approved by the Senate.

“While changes are still possible as the bill proceeds to the House of Representatives, we believe investor expectations for the industry will appreciate materially with the passage of the more evenly divided Senate,” Strouse wrote.

Among fuel cell and hydrogen companies, shares of Fuel Cell Energy Inc.
FCEL,
+6.90%

surged 6.5% in midday trading toward a three-month high, Plug Power Inc.
PLUG,
+6.49%

powered up 2.8% and Ballard Power Systems Inc.
BLDP,
+3.70%

erased an earlier gain of as much as 5.8% to trade little changed.

Shares of First Solar Inc.
FSLR,
+2.95%

jumped 6.7% toward a nine-month high, and have soared 42% since July 27. Strouse upgraded the solar company to overweight from neutral, while boosting his stock price target to $126 from $83, as he assumes a $43-per-share benefit from manufacturing tax credits.

“We view companies with existing domestic manufacturing as the most immediate beneficiaries, while demand should also accelerate, likely even further when domestic manufacturing is more established, which we expect to lower prices further and make renewables increasingly more in the money versus fossil fuels.”

Among some other solar stocks, Strouse covers, shares of Sunrun Inc.
RUN,
+1.63%

rose 4.6%, Sunnova Energy International Inc.
NOVA,
+4.70%

gained 1.7%.

Meanwhile, SunPower Corp.’s stock
SPWR,
+3.62%

reversed an earlier gain of as much as 4.6% to trade down 1.6%, while SolarEdge Technologies Inc.
SEDG,
+3.60%

was up as much as 5.0% before falling back to be down 0.9%.

Strouse raised his price target on SunPower to $25 from $20, saying he expects the company to benefit from accelerated demand for residential solar, especially since the company derives 100% of its revenue from the U.S. However, he reiterated his underweight rating on the stock due primarily to “relative valuation,” saying the premium valuation it trades at relative to peers is unjustified.

He said SolarEdge, which generates about 40% of its revenue from the U.S. market, also trades at a premium to its peers. He still rates the stock overweight and raised his stock price target to $419 from $373.

Elsewhere, Tesla Inc.’s stock
TSLA,
+4.68%

charged 4.7% higher, while shares of fellow electric vehicle makers Rivian Automotive Inc.
RIVN,
-0.13%

were driven 7.8% higher, Lucid Group Inc.
LCID,
+3.15%

climbed 6.8% and Nikola Corp.
NKLA,
+2.09%

hiked up 1.8%.

Strouse also upgraded TPI Composites Inc.
TPIC,
+2.59%

to overweight from neutral, and bumped up his price target to $27 from $17. Shares of the wind blades maker for the wind energy market surged 6.4%, toward their first close above the $20 market since November 2021.

He also downgraded energy and water use measurements provider Itron Inc.
ITRI,
+3.34%

to neutral from overweight, saying he didn’t expect a material near-term impact to the company business from the Inflation Reduction Act. He believes he believes other companies he covers are relatively better positioned to benefit.