By Senad Karaahmetovic
Wolfe Research analysts downgraded shares of Sunnova Energy (NYSE:NOVA) and Sunrun (NASDAQ:RUN) to Peer Perform from Outperform, citing headwinds from higher interest rates.
The analysts see business tailwinds outweighed by the higher rate environment. The analysts previously noted it's hard for investors to hold residential solar stocks in a rising rate environment, which is "getting worse."
"This affects valuation of all Clean Energy growth stocks (from a DCF value standpoint) but Resi Solar companies are most exposed as their business requires frequent access to capital. We are still big believers in the demand tailwinds for the business from the benefits in IRA and from pricing headroom afforded by rising utility rates, which we expect to continue moving higher. But we need to see some sign of interest rate and credits markets stabilizing," the analysts said in a client note.
On RUN, the analysts see a fair value in the range between $24 and $29. Earnings should be "solid," they added. As far as NOVA is concerned, a fair value is estimated between $18 and $23.
However, in this case, the analysts expect an "underwhelming Q3 report." He also expects the company to guide down for principal payments.
"We see these lagging due to lower unscheduled prepayments because mortgage refi activity has halted and customers have little incentive to prepay low-rate solar loans given where rates are today," the analysts concluded.
Shares of NOVA are down 2% while RUN stock is trading 3.3% lower in pre-market Thursday.