Wells Fargo Initiates Coverage of Solar Stocks Based on Long-Term View

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Wells Fargo analyst Michael Blum initiated coverage of solar stocks Sunnova Energy (NYSE:NOVA) at Equal Weight, Sunrun (NASDAQ:RUN) at Equal Weight, SunPower Corporation (NASDAQ:SPWR) at Underweight, and a backup power company, Generac Holdings (NYSE:GNRC) at Overweight, in a note to clients Wednesday.

The analyst set a price target of $22 per share on Sunnova, $27 per share on Sunrun, $17 per share on SunPower, and $285 per share on Generac.

The analyst said the firm continues to be neutral to negative on solar in the near term given inflation, interest rate pressure, supply chain constraints, and government policy headwinds.

“US policy is not supportive of solar growth, in our view, with tariffs on Chinese solar panels, the commerce department’s investigation into possible circumvention of the tariffs (AD/ CDV), revisions to net metering, the possibility the solar ITC (investment tax credit) could not being extended, and a lack of clarity on whether clean energy incentives in a Build Back Better bill will pass,” wrote Blum.

However, over the long-term, they are positive for residential power “given a number of macro trends which should provide a tailwind to growth.”

“Utility rates have grown at a modest 1.6% CAGR over the past decade as grid infrastructure investments were offset by low natural gas prices, keeping utility bills in check. This is likely to change, in our view. Our utility team believes utility rates will increase going forward due to a combination of higher natural gas prices, higher interest rates, and increased investment to fortify the grid, making solar more attractive for homeowners.”