The clean energy sector faces a volatile second half of the year as interest rates are expected to remain higher for longer and the U.S. presidential election creates uncertainty over what future regulations will look like, according to JPMorgan analysts. The industry is nonetheless benefiting from growing tailwinds as the role of renewables in powering data centers remains underappreciated and advantages from the Inflation Reduction Act are not yet fully reflected in stock prices, the analysts told clients in a research note Thursday. JPMorgan’s top picks for the rest of the year are two smaller, lesser known companies â Hannon Armstrong Sustainable Infrastructure and TPI Composites . Hannon Armstrong finances renewable projects and TPI builds blades for wind turbines. The investment bank has $39 price target for Hannon Armstrong, implying 21% upside from Thursday’s close of $32.13. TPI has a $8 price target, suggesting about 90% upside from the latest close of $4.23. The two stocks are up about 30% and 40%, respectively, over the past three months. Hannon Armstrong is well-suited to the current interest rate environment because the company can play the yield curve in either direction, according to JPMorgan. When long-term Treasury rates are higher than short-term rates, Hannon Armstrong can book projects at the higher rate but finance them at the lower rate. When yields are inverted as they are currently, Hannon Armstrong adds fewer projects but generates earnings from securitizations, according to the analysts. “We believe the company’s diversified asset portfolio, demonstrated ability to flex toward securitizations, and large addressable market should position the company well for growth,” JPMorgan analyst Mark Strouse and his team told clients. Meanwhile, Hannon Armstrong currently pays an above-average market yield of 5.2%, according to FactSet data. Profits hit TPI Composites’ profitability has been hit by the downturn in wind energy caused by higher interest rates raising financing costs. But JPMorgan expects more visibility into the company’s volumes and margin recovery during the second half of the year due to contracts already booked and improving customer demand. “We continue to recommend TPIC to value investors seeking exposure to the Alt Energy space,” Strouse and his team told clients. “We look for TPIC to outperform the mean of our coverage universe over the next 6-12 months.” On the solar side, JPMorgan still sees utility-scale projects having the highest level of demand, with Nextracker and First Solar as standout stocks, while the residential sector remains lackluster as companies are still clearing out a clogged inventory channel. Solar stocks broadly rallied this week with First Solar up 26% through Thursday, and Nextracker up 16%. JPMorgan raised First Solar’s price target by $22 to $262, implying 4% upside from Thursday’s close. Nextracker’s price target remains at $63, suggesting 23% upside from the last closing price of $51.32. The investment bank puts Nextracker’s compound annual growth rate over the next five years in the mid-teens as the leading supplier of sun trackers with exclusive exposure to the utility market. First Solar already has a years-long backlog that provides a buffer and the company is expected to see stronger bookings volume after 2026, according JPMorgan. While First Solar has become the darling of the solar space, JPMorgan still notes some clouds on the horizon. “We expect increased competition to enter the U.S., eroding a competitive advantage for FSLR, which we believe will likely weigh on the multiple that investors assign to the core operational business,” Strouse said.
