BofA Upgrades Sunnova On Hopes For Solar Tax Credit Extension

Solar stocks have been a bright spot in the market in 2020, and one analyst said Wednesday that things should get even brighter for Sunnova Energy International Inc NOVA.

The Sunnova Analyst: Bank of America analyst Julien Dumoulin-Smith upgraded Sunnova from Neutral to Buy and raised his price target from $19.50 to $25.

The Sunnova Thesis: Dumoulin-Smith said a Democratic win in the November election would likely pave the way for an extension of the investment tax credit for residential solar installations, a bullish catalyst for solar stocks. Bank of America estimates a three-year extension would be worth roughly $4.50 per share in value for Sunnova.

“We see the broader clean energy/tech sector has traded up of late substantially on the back of growing promises for clean energy under a new administration, [and] we emphasize the most direct benefits to the resi solar sector, given its acute exposure to the ITC through the meaningful contribution from tax equity to its asset-level financing structure,” Dumoulin-Smith wrote in a note.

He said an ITC extension would create substantial growth value upside for Sunnova’s DevCo. In addition, he values the company’s underlying PowerCo at around $10 per share.

Dumoulin-Smith is anticipating second-quarter earnings season will support expectations of higher cash flows among residential solar stocks.

According to PredictIt, Joe Biden currently has a 62% chance of winning the White House in November, and Democrats have a 64% chance of gaining control of the Senate as well.

Benzinga’s Take: It’s understandable how the combination of near 0% interest rates and large government tax subsidies paint a pretty bullish picture for residential solar stocks in 2021 and beyond. However, any indication in the polls that the momentum is shifting back to Republicans could create some extreme volatility in solar stocks heading into the November election.

Related Links:

Gordon Johnson Says SolarEdge 'One Of The Better Shorts In The Market'

Enphase Energy Short Seller Doubles Down On Fraud Allegations Following Third-Party Investigation