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GLJ Research downgraded Sunrun (NASDAQ:RUN) from Hold to Sell on Tuesday, assigning a price target of $0.01 amid concerns about the company’s accounting practices and cash burn rate.
The research firm estimates that Sunrun is burning approximately $644.562 million per year in cash based on its current 1,074,270 systems in service, assuming each system is underwater by about $600. GLJ Research highlighted a "circular problem" where Sunrun needs to grow to cover its cash burn, but growth itself increases the cash burn.
The downgrade follows language in the US Senate’s tax-and-spend bill released Monday night that GLJ Research believes will prevent Sunrun from continuing its growth trajectory. The bill’s provisions would eliminate residential solar finance companies’ ability to sell tax credits to third parties like Google (NASDAQ:GOOGL), Meta (NASDAQ:META), and Amazon (NASDAQ:AMZN) through leased systems or PPA-based systems.
GLJ Research called this change "potentially an existential threat" to both Sunrun and SolarEdge (NASDAQ:SEDG), and to a lesser extent Enphase. The firm suggested Sunrun’s accounting practices allow it to overstate system values through the fair market value approach, enabling the company to claim more tax credits than would otherwise be available.
The Senate bill maintained unchanged 45x credits for solar production, with the 2031 cliff removed, which GLJ Research noted as "an incremental positive for First Solar (NASDAQ:FSLR)." According to InvestingPro data, First Solar demonstrates strong financial health with revenue growth of 19.4% and operates with minimal debt at just 3% of total capital. The company’s robust gross margin of 43.6% and current trading price suggest it may be undervalued based on InvestingPro’s Fair Value analysis. For deeper insights into First Solar and access to 8 additional ProTips, explore the comprehensive Pro Research Report available on InvestingPro.
In other recent news, First Solar has been in the spotlight due to several legislative and market developments. Jefferies analyst Julian Dumoulin-Smith raised the company’s price target to $157, citing the potential impacts of the House bill, which could increase demand for First Solar’s modules. Despite this, Jefferies maintained a Hold rating, noting concerns over market uncertainty and execution challenges. Meanwhile, Mizuho (NYSE:MFG) Securities highlighted First Solar as a key beneficiary of recent legislative changes, particularly in light of anti-China policies that could impact the renewable sector. These policies could give First Solar a competitive edge due to its reduced reliance on Chinese components.
KeyBanc Capital Markets has maintained a Sector Weight rating on First Solar, indicating expectations for the stock to perform in line with its sector peers. The firm also reiterated an Underweight rating with a $100 price target, expressing caution over legislative impacts on First Solar’s earnings. BMO Capital Markets, on the other hand, maintained an Outperform rating on First Solar despite downgrading other solar stocks, citing the company’s advantaged position due to the stability of certain tax provisions. These developments underscore the complex legislative environment affecting First Solar and the broader solar industry.
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