Solar panel companies like Sunrun (RUN) got a major boost this morning after new reports from the White House suggested significant new advantages to come. Sunrun added 11.1% in premarket trading on Monday, and the gains stuck around into Monday’s trading session.
The news comes at an excellent time, but will it be enough to turn around the potential fallout from a potential recession ahead? Overall, I’m bearish on Sunrun. The word from the White House is definitely a big advantage. However, it’s going to have a lot to overcome in order to take advantage of that news.
The last 12 months for Sunrun stock have been largely downhill. The company staged an impressive run-up in October that saw it challenge $60 per share. That challenge didn’t last long, however, as it plunged over the next four months. The company shed roughly two-thirds of its value in that space.
The latest news, however, is proving a help not just for Sunrun but for several other solar manufacturers. A recent White House investigation snarled imports of solar panels from Vietnam, Malaysia, Thailand, and Cambodia.
This led to slowed-down construction efforts and increased difficulty in actually finding the panels in question. So, the White House announced an exemption on solar panel tariffs from those countries that would last two full years. That means a lot of fees are no longer in the picture for companies importing from those countries.
Wall Street’s Take
Turning to Wall Street, Sunrun has a Strong Buy consensus rating. That’s based on 12 Buys assigned in the past three months. The average Sunrun price target of $51.42 implies 73.8% upside potential.
Analyst price targets range from a low of $35 per share to a high of $89 per share.
Investor Sentiment is Looking Cloudy
As strongly as analysts feel about Sunrun, they’re about the only ones who are feeling it. Sunrun currently has a Smart Score of 1 out of 10 on TipRanks. That’s the lowest level of “underperform.” That also makes it likely that Sunrun will lag the broader market.
Hedge fund involvement is one of the biggest trouble signs. Based on the reports from the TipRanks 13-F Tracker, hedge funds divested 5.3 million shares of Sunrun last quarter. That’s just the latest drop; hedge funds have been paring back their Sunrun holdings since June 2021.
It doesn’t get better from there. Insider trading at Sunrun is heavily sell-weighted. In the last three months, there were 15 Sell transactions to 11 Buy transactions. That adds up to a sale of $811,200 in that time. The broader picture is worse still. Insider transactions were again heavily sell-weighted in the past year, with 61 Sell transactions against just 23 Buy transactions.
Meanwhile, retail investors—at least those who hold portfolios on TipRanks—were also divesting. TipRanks portfolios that held Sunrun were down 0.7% in the last seven days, while the last 30 days saw the number drop 1.8%.
Sunrun’s dividend history, meanwhile, contributes nothing here, as it doesn’t exist. The company is likely focused on maintaining its income and bolstering its share price.
Buying Solar Panels in a Recession Seems Like a Long Shot
The news that Sunrun, among others, will have one less expense to worry about is great news for it and its investors. No one can take that away from Sunrun; it’s about to be better able to operate in the field and require less cash to do so.
This cash can be reinvested elsewhere and help improve the bottom line, or it can be stored if it needs to get through a future rough patch.
Interestingly, that’s just what we, as an economy, are coming up on – a rough patch. A seriously rough patch indeed, too; with food prices climbing and other prices growing as well, households may be taking serious looks at their budgets.
I personally overheard on the news this morning about California households that, facing $7 per gallon gas, may have to choose between gas and Starbucks (SBUX).
Sure, “first-world problems.” I know. However, the point remains: if gas prices are prompting Californians to reconsider their morning latte fix, where else are similar decisions being made? Where are these decisions taking on much graver tones? Where are households considering whether they can go on vacation, send little Timmy to college, or even keep up Scraps’ puppy food?
In an environment like this, households are probably pushing “solar panel array” to the bottom of the list of potential expenditures. That’s not going to do well for Sunrun or any other solar panel company.
Granted, the idea of having a backup power source is tempting. It’s downright necessary for some, including those who work from home. No one wants to try and get a hold of their boss by cell phone and tell them that they can’t work because the power’s out from last night’s storm.
The state of the power grid doesn’t help either; over 70% of the U.S.’s power grid lines and transformers are more than 25 years old. This increases the chances of multi-hour blackouts substantially. Some power grids are already warning of capacity shortfalls this summer in the U.S. as well.
As dire as these warnings are, however, it’s still impossible to get blood from a stone. U.S households are increasingly tapped out. Protecting themselves against the potential for power outages is about as big a long shot as funding a mission to Mars. That’s going to do terrible things to solar projects in the next several months.
Concluding Views
The problem in a nutshell here for Sunrun and its contemporaries is that their sales proposition is good but not good enough to overcome an inflationary recession. It’s fairly easy to make a case for backup power systems when times are good. Generac (GNRC) made hay when that sun shined several months back during the California wildfires.
Sunrun, however, is likely to have missed the boat herein. With virtually every measure of investor sentiment turning against the company, even trading below its lowest price target doesn’t help matters much.
Thus, I’m bearish on Sunrun. I figure Sunrun has more room to fall. Those temporary tariff waivers aren’t likely to be much help in the face of overwhelming numbers of customers rushing for the exits.
