Alternative energy stocks First Solar Inc. (FSLR) and SunPower Corp. (SPWR) took a tumble last week on recent policy changes in China that have been viewed as a threat to solar energy demand and prices worldwide. (See also: Solar Stocks on Fire Following California Mandate.)

Analysts at Baird are the latest to weigh in on shares of the two U.S.-based solar rivals, arguing that that First Solar will maintain "substantial competitive advantages" over its peers, despite a “knee-jerk negative reaction” to news that China is changing its solar subsidy program, reports Barron's. Meanwhile, Baird analyst Ben Kallo downgraded shares of SunPower to neutral, writing that the stock is “too difficult to own in the current market."

In a note to clients Monday, Kallo added First Solar to the firm's "Fresh Pick" list. He expects the Tempe, Arizona-based company to maintain its cost advantage, even with best-in-class Chinese manufacturers. Baird expects this to lead to upside in 2020 estimates, as noted by Barron's. "Additionally, a significant portion of First Solar's capacity through 2020 is already under contract and we believe it is unlikely customers break agreements," wrote Kallo. 

FSLR Investors Overreacting to Policy Change from Beijing

The Baird analyst is less optimistic about San Jose, California-based SunPower, reducing his 12-month price target from $10 to $7. While the analyst highlighted SunPower's management team and execution as positives, he views the stock as at risk of lower average selling prices (ASPs) for the company's premium products, as oversupply could become an issue. 

Last week, analysts at JMP Securities downgraded First Solar to underperform from outperform, slashing their price target from $87 to $46 on concerns that Beijing plans to cut subsidies and curbing construction of new solar projects. The bears expect policy change to pressure solar margins past 2019, as pricing pressure expands outside of the U.S. and Chinese suppliers look to compensate for a sharp drop-off in expected demand at home. 

First Solar closed down 1.6% on Monday, reflecting a 23.3% decline year-to-date (YTD) and a 41.4% increase over the most recent 12 months. SunPower, which rebounded nearly 6% on Monday, has fallen 11.4% YTD and has declined 6.7% over 12 months. By comparison, the S&P 500 is up about 4.1% in 2018 and has returned 14.7% over 12 months. (See also: Solar Energy to Cost Less Than Coal by 2021.)