Fading Subsidies And Oversupply Will Undermine Long-Term Viability

Key Takeaways

• Reliance on subsidies, regional concentration, and rising financing costs expose Solaria to regulatory, revenue, and margin risks.
  
• Oversupply and rapid technology shifts threaten long-term pricing, competitive position, and sustainable growth in the renewables sector.
  
• Expansion into storage, wind, and European data centers, with accelerating PPAs and infrastructure progress, supports revenue growth, margin improvement, and recurring profits amid a major share buyback.

Catalysts

Generates solar photovoltaic energy.

• There is a growing risk that policy support and government subsidies for solar and energy storage may be reduced or eliminated in core markets like Spain and Southern Europe, which would compress project returns, directly impacting Solaria's long-term revenue growth and profitability as reliance on incentives and regulatory support remains high.
  
• As global interest rates remain elevated or potentially rise further, the cost of financing Solaria's rapid expansion in generation, batteries, and data centers could increase substantially, eroding project IRRs and putting significant downward pressure on net margins through higher interest expense and diminished investment returns.
  
• The current aggressive buildout in solar, wind, and battery capacity, combined with similar industry-wide expansions, raises the likelihood of persistent oversupply in the renewables sector, which could lead to structurally lower merchant electricity prices, undermining the assumptions behind Solaria's future revenue and EBITDA growth.
  
• Solaria's business is still heavily concentrated in Spain and the Iberia region, leaving the company vulnerable to localized regulatory risks, energy market reforms, or sudden changes in grid access, all of which could cause revenue volatility and disrupt planned project deliveries.
  
• The pace of technological innovation in alternative renewables (such as advanced wind, next-gen batteries, or hydrogen) threatens to outcompete traditional solar PV, and as Solaria is still highly exposed to single-technology risk, this could lead to a long-term reduction in market share and declining operating margins.

Solaria Energía y Medio Ambiente Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Solaria Energía y Medio Ambiente compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Solaria Energía y Medio Ambiente's revenue will grow by 6.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 48.7% today to 30.5% in 3 years time.
• The bearish analysts expect earnings to reach €90.5 million (and earnings per share of €0.7) by about July 2028, down from €118.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, up from 11.6x today. This future PE is lower than the current PE for the GB Renewable Energy industry at 21.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.66%, as per the Simply Wall St company report.

Solaria Energía y Medio Ambiente Future Earnings Per Share Growth

Risks

• Solaria is expanding into battery storage and wind, with permitting well advanced and major installations scheduled for 2025 and beyond, which could extend operational hours and optimize power pricing, supporting both revenue growth and improved EBITDA margins.
  
• The company is positioning itself as a key supplier to the rapidly increasing European data center sector-described as a major long-term electricity consumer-with a pipeline of consumption points and expectations of significant new contracts, which could deliver recurring, stable revenues and steady net profits over multiple years.
  
• PPA (power purchase agreement) signings are accelerating, with management confident in securing favorable fixed-price deals, which would protect revenues and margins from merchant price volatility and improve earnings visibility.
  
• Substantial progress in grid, substation, and connection infrastructure over the past years enables rapid scaling of both generation and storage assets, allowing Solaria to capture additional market share and spread fixed costs, which is likely to support EBITDA margin improvement.
  
• Management is confident enough in long-term cash generation and undervaluation to initiate a large share buyback of up to 10% of the company, funded without sacrificing project growth, suggesting strong free cash flow outlook and ongoing profit growth.

Valuation

• The assumed bearish price target for Solaria Energía y Medio Ambiente is €7.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Solaria Energía y Medio Ambiente's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €19.6, and the most bearish reporting a price target of just €7.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €297.1 million, earnings will come to €90.5 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 9.7%.
• Given the current share price of €11.0, the bearish analyst price target of €7.0 is 57.1% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.