Shares in solar power installer Sunrun (NASDAQ:RUN) rose 5% on April 17 and another 4% overnight after a KeyCorp analyst predicted a rally of 30%.
Sophie Karp put an “overweight” rating on the stock, which has been rallying since late March. Shares were due to open today, April 18, at $21.27, a market capitalization of about $4.4 billion on 2022 revenue of $2.3 billion. Shares traded below $18 each at the end of March.
U.S. Solar Stocks: Good for the Earth, Bad for Your Money
Solar power stocks have been good for the planet but bad for investors.
Most U.S. solar panel makers have been chased out of the market by cheaper Chinese products. The leading U.S. maker, First Solar (NASDAQ:FSLR), has gotten by using a cadmium-telluride technology built on mine tailings rather than silicon. The remaining companies are small; many just assemble panels from imported parts.
Sunrun was founded in 2007 and has survived by rolling-up rival installers like Vivint, acquired in 2020. Sunrun paid $3.2 billion for Vivint, and now the whole company is not worth much more than that.
Karp’s optimism is fueled by the same force that sent RUN stock down last year, interest rates. Assuming rates fall, Sunrun’s profits should rise. The company’s interest expense increased 36% in 2022 to almost $446 million. Gross profits rose just 22%, while revenue was up 44%. The company finished last year with $8.65 billion of long-term debt and $953 million in cash.
While high installation costs and utility resistance hamper Sunrun’s residential market, utility-grade projects are booming. Costs are now falling below those for natural gas, with the primary impediment to growth being the cost of debt.
RUN Stock: What Happens Next?
The short-term future for solar, and Sunrun, remains tied to interest rates. If they fall, Sunrun’s profits should rise, as KeyCorp predicts.
Falling panel prices mean a slow-motion sunset for fossil fuels in the long run.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
