Residential Solar Market Struggles: Analyst Highlights Policy Shifts And Rates Curbing US Growth

Truist Securities analyst Jordan Levy cut the rating and price target of several Sustainability equities following the recent broad-based sell-off on increased investor concerns amid a 'higher-for-longer' rate environment.

The analyst downgraded Sunrun Inc RUN to Hold from Buy and lowered its price target to $12 from $30.

Levy lowered the rating on Sunnova Energy International, Inc NOVA to Hold from Buy at a decreased price target of $11 from $35.

On the other hand, the analyst cut the price target for SunPower Corp SPWR to $6 from $10, with a maintained Hold Rating.

Levy notes the importance of the 'long game' in Sustainability and believes the sector is in a phase of valuation rationalization, with balance sheet strength & steady profitability deciding equity performance. 

The analyst believes the residential solar market has been impacted by rates & policy changes curbing U.S. growth and expects the trend to continue in 2024. However, the analyst is bullish on the long-term outlook for the home electrification and resiliency market.

Overall, the analyst believes in NOVA & RUN's strength of TPO financing and sees the companies gaining market shares. However, Levy lacks confidence in the long-term margin benefits of RUN's key initiatives, such as battery deployment, and believes cash generation will come from increasingly costly growth in the near term.

For NOVA, the analyst modestly increased FY23 EBITDA + P&I estimates to $522 million (from $521 million, Street view of $512 million) but lowered FY24 and FY25 forecasts by 3% and 8%, respectively, mainly on expected prolonged recovery in the U.S. residential markets & increasing interest rates.

For RUN, Levy cut FY24 and FY25 revenue estimates to $2.68 billion (from $2.71 billion) and $3.20 billion (from $3.23 billion), respectively, but maintained the FY23 estimate at $2.40 billion.

For SPWR, the analyst decreased EBITDA estimates to $105 million (from $127 million, consensus $124 million) for FY24 and $134 million (from $193 million, Street view of $166 million) for FY25, on the cautious view on the U.S. residential markets recovery.

Price Action: RUN shares are trading lower by 3.75% at $10.26, NOVA by 1.97% at $9.23, and SPWR by 1.83% at $5.38 on the last check Wednesday.