Sunnova May Face Labor & Operational Risks In Dealer Business Model Amid Policy Uncertainty: Analyst Sees Lower NPV

KeyBanc Capital Markets analyst Sophie Karp reiterated the Overweight rating on Sunnova Energy International Inc. NOVA, lowering the price target from $39 to $31 to reflect a lower projected NPV/share.

The reduction in price target reflects a decrease in 2023-2025 estimates due to 2Q results and market conditions, lowering the fair market value range to $27-$34. 

After a sluggish second quarter reported last month, where earnings missed estimates, NOVA reiterated its FY guidance across all metrics and raised its customer growth targets for 2023.

However, the analyst highlights labor and operational risks that can impede the stock, especially within the dealer business model (installation and customer-facing services are performed by non-company employees in the dealer business model). 

Karp also thinks that policy uncertainty exists at both the federal and local levels, which may present material risks to the overall viability of the product/service.

The analyst highlights the recent capital market activity, translating into a slightly lower NPV/share growth forecast for NOVA.

For Q3, the analyst lowered revenue estimates from $175.1 million to $168.7 million. 

However, the analyst thinks that NOVA's current levels provide an attractive entry point for investors.

With the shares trading substantially below the current NPV-6/share, NOVA presents an attractive play on both secularly growing residential solar space as well as a moderating rates environment, Karp adds. 

For FY23, the analyst raised revenue forecasts from $695.6 million to $718.9 million.

Price Action: NOVA shares are trading lower by 3.61% to $13.74 on the last checked Thursday.