In a report published Tuesday, Deutsche Bank analyst Vishal Shah commented on the solar sector, noting that current weakness provides an "attractive" entry point for long-term investors.
"We continue to view YieldCos as a significant growth catalyst for the solar and broader renewable sector and expect YieldCos to not only increase the availability of capital, but also provide significantly lower cost of capital to the renewables sector."
Shah said that the market is still in the early stages of a "multi-year growth cycle" of YieldCos and solar stocks are currently not factoring in the potential upside. In addition, the analyst argued there is an "even wider disconnect" between U.S. and Chinese solar valuations as investors are assigning a greater risk premium to international projects and not giving credit for successful execution of downstream IPOs.
Shah offered several reasons why investor interest in YieldCos is expected to remain. First, the global growth outlook for renewables is likely to continue improving as companies continue to lower their expenses. Second, many YieldCos have an existing backlog of ROFO (right of first offer) assets proving "significant" visibility for three to five years of growth.
Shah further added that YieldCos offer "one of the greatest growth prospects" as the global solar market is expecting to grow at a 30 percent compounded annual growth rate over the next five years. Coupled with that, the majority of YieldCos are targeting approximately 15 percent dividend growth, which "can be easily supported."
Analyst Rating And Price Target
Shares of Yingli Green Energy Hold. Co. Lt.d (NYSE: YGE) are Hold rated with a $1.50 price target.
Shares of Trina Solar Limited (NYSE: TSL) are Buy rated with a $15 price target.
Latest Ratings for YGE
| Apr 2015 | Bank of America | Downgrades | Neutral | Underperform |
| Jan 2015 | Deutsche Bank | Downgrades | Buy | Hold |
| Jun 2014 | Deutsche Bank | Maintains | Buy |
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