Shares of Sunrun and Sunnova declined more than 2% premarket Tuesday after Piper Sandler downgraded each company to neutral, saying there are few catalysts that could push these stocks higher amid a broader risk-off environment in the market. Analysts led by Kashy Harrison said that with climate legislation once again stalled in Washington, and recession fears mounting, investors will now value renewable energy stocks through the lens of an economic slowdown. Piper expects residential solar growth to stall next year, and said it has “lower confidence” around Sunrun and Sunnova’s leveraged cash generation trajectory. “NOVA possesses a levered balance sheet and since the priority for NOVA has been long-term discounted customer valuation growth over NT levered cash generation, we don’t have the required confidence on the corporate cash trajectory,” Piper said. Harrison noted that while he expects the demand environment to remain strong, he doesn’t anticipate Sunnova raising its guidance. When it comes to Sunrun, Piper said that its outsized exposure to the California market presents a risk as the state debates its net-energy metering policy. “Demand for RUN’s leasing model should be more resilient than loan products; however, consumer credit quality could deteriorate, plunging consumer confidence could make households less keen on long-term arrangements and a recession could adversely impact consumer credit quality,” Piper wrote in a note to clients. Ultimately, the firm sees a deceleration in Sunrun’s 2023 installations. Both Sunrun and Sunnova are down roughly 30% this year amid several industry headwinds. Policy uncertainty, supply chain bottlenecks and rising raw material prices have all weighed on shares of solar companies. The Invesco Solar ETF, which tracks the entire group, is down 7% for 2022. On the flip side, Piper Sandler reiterated its overweight rating on shares of Enphase and SolarEdge . – CNBC’s Michael Bloom contributed reporting.
© heardonwallstreet.com