The Chinese government is reportedly considering a sharper-than-expected solar incentive cut, leading some industry followers to believe component demand will go up sharply in the near-term as customers rush to beat the deadline.
This is good news for U.S.-listed solar stocks, at least in the short-term, according to longtime industry bear Axiom Capital.
Axiom's Gordon Johnson said the firm is upgrading its sector rating to market overweight from market underweight and bumping the stock ratings of SolarCity (SCTY) , Trina Solar (TSL) , JA Solar (JASO) and Yingli Green Energy (YGE) .
Johnson wrote that a Chinese feed-in tariff, or FIT, cut for solar projects earmarked for Jul. 1, 2017, could shift demand up in the country by as much as 25 gigawatts through the first half of 2017, given that a similar cut that took effect Jul. 1, 2016, caused about 20 GW of increased demand leading into the cut.
The theory goes that this upcoming cut will provide solar companies building solar projects in the region less incentive to invest after Jul. 1, 2017, meaning a short-term frenzy to complete projects while incentives like the FIT are still high could occur.
Considering an anticipated 34 GW of demand from the rest of the world, an expected 70.5 GW of modules produced in 2017 and about 5.7 GW of excess inventory, an uptick in Chinese demand could move the solar market temporarily into a period of under supply, the analyst opined, in turn pushing prices for all solar components higher.
Moreover, following 32 and 18 consecutive weeks of week-over-week multi-wafer and multi-cell price declines, respectively, prices for both these solar panel components climbed this week, likely on word of a much higher-than-expected 2017 Chinese FiT cut.
This positive movement could signal that a demand uptick could already be blooming in China and that solar prices may have bottomed, according to Johnson.
And other fundamentals-based positive catalysts exist as well, the analyst asserted Thursday: The Guggenheim Solar ETF (TAN - Get Report) index has materially under-performed the market this year, falling 32.5% year-to-date versus a 5.7% increase for the S&P 500.
"In short we see catalysts of both the fundamental & sentiment variety on the horizon, implying the time to BUY is now," Johnson wrote.
Keep in mind that while higher module prices are an incremental negative for roof-top solar vendors, like SolarCity, that solar stocks tend to trade together in general, the analyst said.
So the rising tide of solar panel and panel component manufacturers like Trina, JA and Yingli, effectively may lift the boats of SolarCity and other installers like Vivint Solar, as well.
Deutsche Bank analyst Vishal Shah lowered his price target on the stock this week and belayed concern over the company's 2017 Ebitda guidance of between $300 million and $400 million.
Shah wrote in a Oct. 4 research note that an increasingly competitive pricing environment could cause the assumption of $300 million Ebitda on about 500 megawatts of shipments to prove aggressive on SPWR's part.
Overall, Axiom remains a bear in the long-term on the solar industry, but being short on solar into what the firm calls a possible "titanic bout of pull-in demand" from China, would be silly and pointless.