Wells Fargo is bullish on residential solar with these stocks primed to rebound

Residential solar stocks are primed to rebound in 2024 with falling interest rates acting as the key catalyst, according to Wells Fargo.

Analyst Michael Blum is more bullish on the residential than utility-scale solar with the former poised to benefit more from the Federal Reserve cutting rates. Blum upgraded inverter manufacturer Enphase and downgraded the utility-scale powerhouse First Solar in a Monday note to clients.

“Residential solar demand is more sensitive to interest rate movements than utility scale; thus, we expect falling interest rates will be a bigger driver to performance,” Blum told clients in a note on Monday.

Blum’s top residential picks are Enphase and Sunrun. He upgraded Enphase to overweight with a price target $141, implying more than 22% upside from Friday’s close of $115.39.

“With rates falling and a low bar for estimates over the next few quarters (due to de-stocking), we believe the worst is over for ENPH,” Blum told clients.

The analyst is overweight on Sunrun and raised his price target for the installer to $22, suggesting 36% upside from Friday’s close of $16.16

Blum downgraded First Solar to equal weight from overweight and cut his stock price target by 13% to $187 from $215 previously. The new target still implies 12% upside from First Solar’s Friday close.

Blum is going against Wall Street consensus, with 80% of Wall Street analysts rating First Solar as buy or overweight with an average target of $230.98. He simply sees few catalysts to provide additional upside for First Solar given that the company is booked through 2027.

“By virtue of having sold out capacity for the next few years, FSLR has less sensitivity to lower rates relative to peers,” Blum told clients.

—CNBC’s Michael Bloom contributed to this report.