Shares of
Sunrun
and
Sunnova Energy International
were falling Wednesday after an analyst said a prolonged period of higher interest rates will continue to be a headwind for residential solar installers.
Truist Securities analyst Jordan Levy downgraded shares of both
Sunrun
(ticker: RUN) and
Sunnova
(NOVA) to Hold from Buy on Wednesday. Levy also cut his price target on
Sunrun
to $12 from $30, and on
Sunnova
to $11 from $35.
Shares of Sunrun were down 3.8% to $10.26 in premarket trading Wednesday, while Sunnova fell 3.3% to $9.10.
“Following the recent broad-based selloff in Sustainability equities under renewed investor concerns on a ‘higher-for-longer’ rate environment, we’re reevaluating the trade-off of near-term headwinds vs. long-term value creation,” Levy wrote in a research note. He added that investors are paying attention to steady profitability and margin improvement, which is difficult in this current economic environment.
The Federal Reserve has raised interest rates 11 times in an effort to battle stubbornly high inflation. Higher rates means financing pricy home improvement projects, like installing solar panels, is even more expensive. That has been a headwind to the solar industry this year, with Sunrun shares down 56% this year and Sunnova off 48%.
The problem for solar companies looking ahead is if the central bank sticks to a plan of higher rates for longer as it works to bring inflation down to the 2% target. Not only will that continue to pinch customer demand, but Levy said he believes cash generation for both companies “will need to come from increasingly costly growth over the near-term.”
Write to Angela Palumbo at [email protected]
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