GLJ Research lifts Sunrun stock rating to Hold from Sell

On Friday, GLJ Research analyst Gordon Johnson upgraded Sunrun stock (NASDAQ:RUN), changing the rating from Sell to Hold. Currently trading at $6.85, the stock has declined nearly 26% year-to-date, according to InvestingPro data. The adjustment comes as the Senate, known for its solar-friendly stance, is scheduled to reconvene on June 2nd. Johnson noted that despite viewing Sunrun’s business model as having structural issues, there is a near-term risk to maintaining a short position on the company’s stock.

Sunrun, which Johnson believes has significantly understated its operations and maintenance (O&M) expenses to secure larger U.S. tax credits, relies on continuous debt issuance to fund its losses. This practice, described by Johnson as a "de facto debt ponzi scheme," has been a point of concern. However, recent political developments have influenced the analyst’s outlook.

In early April, a group of GOP Senators, including Lisa Murkowski, John Curtis, Thom Tillis, and Jerry Moran, expressed their support for maintaining energy tax credits introduced by the Inflation Reduction Act. Their support, conveyed in a letter to Senate Majority Leader John Thune, underscores the bipartisan backing for solar energy incentives.

The anticipation of the Senate’s return and the potential policy decisions that may favor solar energy investments have led to Johnson’s decision to upgrade Sunrun’s stock rating. This move reflects a strategic response to the evolving legislative landscape and its possible impact on the solar industry and companies like Sunrun. With a beta of 2.66, the stock shows significant volatility compared to the market. According to InvestingPro’s Fair Value analysis, Sunrun appears slightly undervalued at current levels. The market will be watching closely as the Senate reconvenes and further details on energy policies emerge. For deeper insights into Sunrun’s valuation and 14 additional ProTips, check out the comprehensive Pro Research Report available on InvestingPro.

In other recent news, Sunrun has been the focus of several analyst updates and legislative developments impacting its financial outlook. UBS recently adjusted its price target for Sunrun to $12, maintaining a Buy rating, in response to a U.S. House budget bill that could phase out key solar tax credits. Despite this, UBS sees potential for Sunrun through pooled residential Power Purchase Agreements, aligning with its strategy. Meanwhile, Jefferies lowered its price target to $6 while maintaining a Hold rating, citing ongoing legislative discussions that could affect Sunrun’s tax credit benefits. BMO Capital Markets downgraded Sunrun to Underperform, reducing its price target to $4, due to concerns over potential legislative changes that may eliminate critical solar incentives.

Conversely, Goldman Sachs increased Sunrun’s price target to $15, maintaining a Buy rating based on a positive outlook for asset value and potential policy relief. They highlighted increased valuation assumptions for future asset installations. JPMorgan reiterated its Overweight rating with a $13 target, noting that Sunrun finds recent legislative proposals workable and highlighted the company’s strategic product innovations like the Flex (NASDAQ:FLEX) product. Sunrun’s executives have expressed confidence in their market position, bolstered by a temporary suspension of tariffs, which could enhance cash flow projections. These developments underscore the complex legislative environment and varying analyst perspectives on Sunrun’s future.

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