Can ReneSola count on pipeline, global expansion to stay on growth path?

After the initial lull, the renewables industry witnessed stable capacity addition during the pandemic, even as the lingering uncertainty underscored the need for energy self-reliance. Solar power companies like ReneSola Ltd. (NYSE: SOL) have stayed unaffected by the virus crisis to a large extend but the economic downturn and corporate spending cuts pose a challenge.

The Stamford, Connecticut-based company has been struggling to stay profitable for quite some time, which made investors take a cautious stance. It might be a long way before it achieves a full-fledged recovery, though the market value picked momentum this year bringing cheer to shareholders. But that doesn’t make the stock a risk-free investment, with the only attraction being the low price. In short, the stock is likely to remain volatile until the management executes its growth strategy effectively.

Fundraising

The highlight of the management’s current operational strategy is the ‘at-the-market’ equity offering program. Funds raised under the program will be used for working capital and the project pipeline. It is also expected to support the company’s ongoing transformation into an asset-light solar project developer. Another focus area is partnerships and joint ventures, especially in Europe where the company looks to expand its footprint.

Balance Sheet

When it comes to liquidity, efforts are on to optimize the solar assets through divestment and to enhance cash flow. It needs to be noted that the cash balance far outweighed total debt in the most recent quarter. A stronger balance sheet might add to investor sentiment provided the growing project pipeline, which stood at about 800 megawatts at the end of the third quarter, translates into top-line growth.

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Is JinkoSolar well-positioned to take advantage of high demand?

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Experts are of the view that the global solar power market is still in a nascent stage, which gives a sense of the huge opportunities awaiting the industry. It is estimated that renewables would account for about 30% of the energy market in the next two decades, with Europe leading in terms of penetration. That bodes well for ReneSola since it is aggressively expanding outside China, hitherto the primary market. While the statistics look bullish, COVID-related disruption and heavy investments could be a drag on the companies’ growth prospects.

Earnings Surprise

Fluctuating demand often took a toll on the company’s financial performance in recent quarters. Earnings, adjusted for special items, dropped to $0.05 per share in the third quarter from $0.23 per share last year, despite the cost-reduction initiatives. The downturn is attributable to an 85% fall in revenues to $9.7 million. The outcome came as a surprise to the market since analysts had forecast the bottom-line to be flat. Meanwhile, the top-line missed the view.

From ReneSola’s third-quarter 2020 earnings conference call:

“Our outlook for the remainder of 2020 considers a couple of key factors. First, the development of COVID-19 and the global medical condition remain highly uncertain. We continue to monitor how the health aspects of pandemic are playing out, as well as the second order effect on the economy. We had anticipated some slowdown in activity in 2020 and believe it’s prudent to factor in broader variability in our outlook. Second, we consider fluctuations that typically occur due to normal unevenness associated with the project development cycle.”

Read management/analysts’ comments on quarterly reports

ReneSola’s shares traded lower on early Friday, after making strong gains in recent weeks. The value more than tripled in the last month alone. However, the stock continues to trade far below the record highs. It has been outperforming the market and is currently trading at the highest level in nearly two decades.