Truist cuts solar stock targets after 'painful start' to 2022

Published Mon, Jan 24 202210:19 AM ESTUpdated Mon, Jan 24 20224:08 PM EST

The Invesco solar exchange-traded fund is already down more than 16% this year after a punishing 2021, and Truist believes headwinds remain for the group. The firm cut its price targets across the board on solar stocks Monday, including on Sunrun . Solar stocks have come under pressure recently, thanks to some sector-specific hurdles, as well as a larger market trend of investors rotating out of growth stocks and into value names. "2022 is off to a painful start as both US policy uncertainty and a broad rotation out of growth equities have disproportionately impacted sector performance," the firm wrote in a note to clients. In December, California regulators proposed changing a key solar incentive program that's been instrumental to the industry's growth in the state. A final decision was expected on Jan. 27, but that has since been pushed back. Solar companies and advocates said the new policies would be detrimental for renewable energy buildout in California. The Build Back Better plan stalling has been another headwind for solar stocks, given the more than $500 billion it outlined for green energy initiatives. Supply chain issues have also weighed on the group. Truist analysts led by Tristan Richardson said the upcoming fourth-quarter earnings results could "offer some line of sight" regarding possible alleviation. That said, he believes that residential solar demand during the period was "muted." "[T]he most prominent risks entering earnings continue to center around supply chain dynamics, including components and batteries, as well as labor and logistics," the firm said. "In 4Q we believe mgmt. teams will speak to further actions around supply chain improvement though it's unclear what commentary companies will offer with respect to policy issues," Richardson added. Truist continues to hold a buy rating on shares of Sunrun, but the firm cut its target on the stock from $76 to $52. Shares of the company closed at $25.91 on Friday. Sunrun is the largest residential solar company in the U.S. based on customer count and market cap, and has a large presence in California. Given this, Truist said the state's policy decision is "the prominent focus for the shares over the foreseeable future." The firm said this adds an "element of ambiguity" ahead of the company's earnings, but Richardson still expects Sunrun "at a minimum to stick to its 'above market growth' mantra." Shares are down more than 21% for the year. Truist also lowered its price target on Enphase Energy — from $290 to $200 — but reiterated its buy rating on the stock. The new target is still 59% above where shares closed on Friday. Inverter company Enphase was one of the few solar companies to end 2021 in the green, but shares are down nearly 30% so far in 2022. Richardson said there's a "very robust demand backdrop" for the company's batteries. "However, we caution downside risks to full capacity utilization on logistics constraint where mgmt has noted storage lead times of ~14-weeks (vs 8-week target)," he said. Richardson expects fellow inverter-maker SolarEdge to have also faced manufacturing constraints during the latest quarter. That said, he believes this is "generally understood in the market" at this point. He reiterated his buy rating on the company, although cut his target from $395 to $340. The stock closed at $220.31 on Friday. Truist also cut its price target on buy-rated Sunnova , as well as on hold-rated SunPower and Shoals Technologies .

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The Invesco solar exchange-traded fund is already down more than 16% this year after a punishing 2021, and Truist believes headwinds remain for the group.

The firm cut its price targets across the board on solar stocks Monday, including on Sunrun.

Solar stocks have come under pressure recently, thanks to some sector-specific hurdles, as well as a larger market trend of investors rotating out of growth stocks and into value names.