Solar panel suppliers are going bankrupt. Why does Jefferies recommend First Solar?

Solar panel maker First Solar, which focuses on the utility sector, has a «unique advantage» in the face of import restrictions from China, according to analysts at Jefferies. They recommended investors buy the company's stock while downgrading home solar panel installer Sunrun. The home solar systems sector has fallen on hard times, with one of the largest companies declaring bankruptcy this week. Wall Street warns that an early repeal of tax credits being debated in Congress would «wipe out at least half the market.» 

Analysts at Jefferies, led by Julien Dumoulin-Smith, raised their recommendation on First Solar's shares from «hold» to «buy,» reports CNBC. The securities' target price has been raised from $157 to $192, which implies an upside of nearly 17% from the close of trading on June 10.

According to Jefferies, First Solar becomes «the only player in the field» in light of pending legislation in the U.S. that threatens to disrupt supply chains in the renewable energy industry. Analysts expect the U.S. Senate to pass legislation that would accelerate the elimination of Inflation Reduction Act (IRA) tax credits for green energy companies that receive a «significant benefit» from foreign supplies. The measure actually targets imports from China, notes CNBC.

First Solar, which manufactures most of its products in the U.S., «benefits uniquely» from import restrictions from China, Jefferies said. According to analysts, the company will be able to raise prices for products sold in the U.S. and increase the average check. In addition, they note that the early repeal of the IRA law's tax breaks will hit the utility solar panel market, which First Solar serves, less than the residential solar systems sector, writes Barron's.

In a separate note, analysts downgraded residential solar system operator Sunrun from a «hold» rating to a «sell» rating and lowered their target price from $6 to $5. Unlike First Solar, Sunrun is targeting residential customers - homeowners - rather than corporate customers. 

«As part of the budget negotiations, the home solar segment has been jeopardized, and while we expect some improvements following the Senate's consideration of the legislation, we believe home solar has little chance for growth, leaving Sunrun vulnerable in both the short and long term,» Jefferies analysts wrote.

In May, companies installing solar panels on rooftops in the US warned that the budget bill promoted by Republicans could seriously damage the industry. The reason is the planned elimination of the tax credit for homeowners, which helped offset a significant part of the cost of installing solar systems and was a key driver of the sector's growth;

Repealing the household tax credits would «wipe out at least half of the home solar market,» warned Roth Capital Partners analyst Phil Shen, whose note was cited by Bloomberg. Raymond James analyst Pavel Molchanov said that, depending on the outcome of budget reform, conditions in this market could deteriorate further in 2026, reports Reuters. 

The U.S. residential solar market is already struggling due to higher duties on imported equipment and subsidy cuts in California, the largest residential solar panel market, notes Bloomberg. On June 9, Sunrun's competitor and one of the largest companies in that market, Sunnova Energy International, filed for bankruptcy. The company had been growing strongly thanks to subsidies and Americans' desire to cut energy costs, but was vulnerable due to rising interest rates: it became harder and more expensive to raise new capital. In May, President Donald Trump's administration, which is pushing to maximize oil and gas production, revoked a partial government guarantee on a $2.9 billion loan that had previously been approved for Sunnova under the Biden administration.

Solar Mosaic, which also serves private customers, filed for bankruptcy last week, while industry pioneer SunPower filed for bankruptcy a year ago.