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If you’re going to bet on solar, bet on businesses with heavy downstream exposure, argues an analyst at Citigroup, who launched coverage of seven solar companies on Wednesday. According to Forbes, analyst Shahriar Pourreza writes that “the upstream segment of the solar value chain is going through a permanent structural shift – mainly the commoditization of the panel manufacturing business.”
There are two main implications of this, Pourreza argues. First, upstream companies will find it harder and harder to distinguish themselves from competitors. In order to remain competitive, pure-play manufacturers will have to shift into downstream operations such as project procurement, development, and maintenance. Second, Pourreza argues that manufacturers will “never see gross margin levels attained prior to the sector bust.”
For these reasons, the analyst gave four solar companies a “Buy” rating, one with conviction, expecting that their downstream exposure and investment in growth regions will lead to long-term gains. Here are his top picks…
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