Solar stocks have cooled off this year following a hot 2020. Shares of
the industry leader in home solar installation and development, have slid around 27% so far this year. Now one analyst thinks a turnaround is on the horizon, though the catalysts that can propel the stock might still be months away.
Piper Sandler analyst Kashy Harrison upgraded SunRun (ticker: RUN) shares to Overweight from Neutral, with a price target of $77. SunRun rose 8.3% in recent Friday trading to $51.10.
SunRun stock’s year-to-date decline comes after it quintupled in 2020, so a cooling-off isn’t terribly surprising. But the slump has gone on longer than some analysts had anticipated, and Harrison says investors are making some key misjudgments. For one thing, SunRun stock may be struggling because of its exposure to rising interest rates. The company borrows substantial amounts of money to finance solar installations, which it then leases to consumers. But long-term interest rates have paused—and even reversed—in recent weeks, after rising earlier this year. And even in the event that rates go up, SunRun can succeed because it can still secure attractive financing, Harrison argues.
Other possible negatives are unlikely to materialize. For instance, California is considering proposals that would allow utilities to charge solar customers higher rates to connect to the grid, but Harrison expects the proposal favored by utilities to fail.
On the other hand, SunRun stands to make big gains should President Joe Biden succeed in passing an infrastructure bill with billions in funding and tax breaks for renewable projects. In fact, the plan could set the stage for even faster solar growth for years to come. “The bill has the potential to provide line of sight toward strong residential solar growth for the upcoming decade,” Harrison writes.
In particular, the solar industry could benefit from a tax credit proposal that would give consumers a break if they bought battery systems with their panels. Harrison thinks that existing solar customers would then “retrofit” their systems with battery packs, potentially allowing them to disconnect from the grid entirely.
Still the analyst doesn’t expect that bill to get a vote for months, so the resurgence in the shares could take a while.
Write to Avi Salzman at [email protected]