On the surface, it’s hard to see how times wouldn’t be good for solar power equipment installer Sunrun (RUN) right now. Electric bills are spiking, and, in some places, the current electric power grid has never been so unreliable. Yet, the stock is currently down 8.9% on the day.
The reason behind the losses features a bit of a sea change at the federal government level. Word out of Democrat Senator Joe Manchin notes that he will not provide support for climate change funding bills. The announcement comes after other Democrats specifically reworked the legislation to better suit Manchin’s interests in the matter.
This is hitting not only Sunrun but other solar power companies hard too. I’ve been bearish on Sunrun before, and the latest news will only serve to cement that position further.
Sunrun seems to have finally found a plateau around the $21-$27 level, where it’s been for the past few weeks. The bad news is that this is down substantially from its 52-week high back in late October and early November, where it was challenging the $60 mark.
Wall Street’s Take on Sunrun Stock
Turning to Wall Street, Sunrun has a Strong Buy consensus rating. That’s based on 13 Buys and one Hold assigned in the past three months. The average Sunrun price target of $45.46 implies 98.1% upside potential.
Analyst price targets range from a low of $27 per share to a high of $66 per share.
Investor Sentiment is Rapidly Going Dark
A look at the investor sentiment metrics for Sunrun suggests a disaster already in progress. Already, Sunrun has a Smart Score of 1 out of 10 on TipRanks – the lowest level of “underperform.” This makes it extremely likely that Sunrun will not outperform the broader market.
Looking at the individual components of investor sentiment is even worse. Based on the results of the TipRanks 13-F Tracker, hedge funds are bolting for the exits. Hedge funds dropped involvement in Sunrun by 5.1 million shares in the last quarter.
This is the third consecutive quarter that hedge funds have pared back their investment in Sunrun; an increase hasn’t been seen since June 2021.
Meanwhile, insider trading at Sunrun is heavily Sell-weighted. In the last three months, insiders sold off $580,300 worth of shares. That really only augments the full year’s trading pattern, in which Sell transactions led Buy transactions by 63 to 23.
Retail investors who hold portfolios on TipRanks, meanwhile, have been running for the door as well. The number of TipRanks portfolios holding Sunrun shares was down 0.6% in the last seven days and down 1.3% in the last 30 days.
Finally, there’s the matter of Sunrun’s dividend history. There is no dividend, nor does Sunrun look to start one any time soon. Clearly, the company is trying to focus on its growth.
Like Watching the Sun Die
Sunrun took a massive loss thanks to the recent reconsideration of Senator Manchin. However, Sunrun wasn’t the only one; in today’s trading session so far, SolarEdge Technologies (SEDG) is down 2.4%, and First Solar (FSLR) is down 8.8%. Meanwhile, SunPower (SPWR) dropped over 9.3% at one point but has recovered about half of those losses.
Solar power companies were having a rough time of things before, thanks to their hefty up-front costs and extended payback periods. Sure, there was some interest at the consumer level – and why not?
With storms of seemingly growing severity gutting the power grid and growing demand spiking not only prices but also the potential for rolling blackouts or worse, it’s easy to see why people would want backup systems to keep the lights on.
However, there’s a problem with that. Government subsidies went at least some of the way to ameliorating hefty up-front costs. Manchin’s move to block support for greener energy may hurt solar power companies’ entire support system. This is particularly true if solar panel subsidies fall by the wayside.
Potential customers will not be at all happy—especially potential customers who are already suffering at the gas pump and the grocery cart. Throw in uncertainty about jobs—we’re already starting to see mass layoffs hit some tech companies—and the picture only worsens for people considering putting photovoltaics on the roof.
Certainly, solar power has a place in society. Getting individual houses to make at least some of their own power cuts the need for inherently limited fuels like coal and oil.
It’s also a great idea to have power generation capabilities in the event of grid failure, which seems increasingly likely as the power grid ages. We just saw ERCOT in Texas all but beg consumers to restrain their power consumption lest the whole grid buckle.
However, many households simply can’t make the jump to solar, especially if costs remain as they are. It’s just a matter of day-to-day survival. “Save the planet” comes a good way behind “keep myself fed.”
Without government support or major price cuts from companies like Sunrun, most solar systems will be out of reach for the average consumer.
Concluding Views – A Bad Situation Turned Worse
The loss of government support is a crippling blow for Sunrun and companies like it. Support seemed so likely just six weeks ago when the Biden Administration announced that it would offer tariff exemptions for imported solar panels.
If government subsidies for solar systems are lost as a result of Manchin’s sea change, that will do further damage to residential solar purchases.
A bad situation for solar power companies only gets worse as the government pulls out. That’s going to leave Sunrun and its contemporaries on the back foot. Maybe individual consumers can now bargain for lower prices just to give Sunrun any kind of business.
However, such bargaining can only go so far. Some of Sunrun’s costs are absolutely fixed. If it doesn’t go far enough to drum up business, that will leave Sunrun at a serious disadvantage.
I was bearish on Sunrun before because of inflating costs hitting consumers hard. I’m still bearish because the problem just got a whole lot worse.
