dipped Tuesday after shares of the residential solar panel provider were downgraded by Goldman Sachs due to increasing concerns over the macroeconomic climate.
Analyst Brian Lee lowered his rating on SunPower (ticker:
) to Sell from Neutral and decreased his price target to $13 from $19.
Most people who can’t pay for solar panels in cash upfront secure loans to do so. Consumers also have the option to lease out the panel with a solar provider through a power purchase agreement. Lee believes that solar panel installers that are more reliant on cash and loan sales will be more sensitive to a downturn in consumer demand, while leases could be more resilient in a tighter lending environment.
In Lee’s view, SunPower is too exposed to cash and loan sales, prompting the downgrade. Lee expects these to continue to account for about 90% of SunPower’s overall volumes.
It doesn’t help that SunPower derives a significant chunk of sales from installations in new homes, which could stall given lagging demand in the housing market, Lee added.
“Against a backdrop of softening consumer demand and potentially weaker residential solar growth, we see downside to current valuation levels,” Lee wrote.
Lee also downgraded
Sunnova Energy International
) to Neutral from Buy, and cut his price target to $24 from $31. The shares are relatively inexpensive, but with roughly half of sales coming from cash and loan customers Lee worries that growth could take a hit in the short term.
Cash purchases will be the first to take a hit in a recessionary environment, Lee predicted. Solar panels can cost upwards of $20,000, and consumers may be reluctant to fork out cash for big-ticket discretionary purchases. Loans may also slow down as increased interest rates discourage spending, he added. That’s why leases may look more attractive.
The analyst is still bullish in the long run on the growth case for residential solar companies in the US But he believes it is “prudent to take a more selective stance on the group in the current backdrop of heightened inflation and rising interest rates.”
) is Lee’s preferred way to play the solar game, given the company’s improving execution on growth and margins. He maintained a Buy rating on the stock, but trimmed his price target to $36 from $40. Unlike SunPower, cash and loan purchases only make up between 20% and 25% of Sunrun’s sales, Lee added, and it has a larger scale, with install volumes roughly double both SunPower’s and Sunnova’s.
SunPower stock was down 0.8% to $17.78 on Tuesday, while Sunnova was gaining 1.2% and Sunrun was rising 3.5%.
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