As blackouts due to extreme heat are becoming a growing reality in California, the state is expected to further expand its dependence on natural gas and solar energy to meet its increasing power demand, benefiting companies in this space. Against this backdrop, investors could consider parking their funds in companies like EQT Corp. (NYSE:EQT) and Sunrun, Inc. (NASDAQ:RUN).
EQT (NYSE:EQT)
Natural gas plays a vital role in California despite the state aggressively transitioning toward renewable sources to meet electricity demand. According to California Energy Commission, about 45% of the natural gas burned in the state is used to generate electricity. Further, given the current situation, natural gas usage is likely to increase.
EQT is among the largest producers of natural gas in the U.S. The growing importance of natural gas as an energy source will likely support its growth. Notably, EQT stock has more than doubled (up over 113%) year-to-date on the back of the rally in natural gas prices and higher energy demand.
Is EQT Corp a Buy?
Despite the surge in stock price, Wall Street analysts maintain a bullish outlook on EQT. The stock commands a Strong Buy consensus based on 12 unanimous Buy recommendations. EQT’s average price forecast of $59.75 implies upside potential of 29.9%.
Strong energy demand, higher average price realizations, focus on debt reduction, accretive acquisitions, and its $2 billion share repurchase program act as positive catalysts for EQT stock and increase its investment appeal.
It’s worth mentioning that hedge funds are also accumulating EQT stock. According to TipRanks’ data, hedge funds bought 2.5M EQT stock in three months. Overall, EQT stock sports a ‘Perfect 10’ Smart Score on TipRanks, implying that it has strong potential to outperform the market.
Sunrun (NASDAQ:RUN)
California’s policy of supporting clean energy is the main reason why solar installations are on the rise in the state. Further, Sunrun’s solar leasing and power purchase agreements pave the way for households to go solar without the need for high upfront installation costs.
What stands out is that Sunrun’s technology offers a long-term solution for blackouts, as the company’s solar-powered batteries can be used to provide backup to critical circuits. This could help customers to have power even in multi-day outages. Further, the cost of solar modules and batteries is declining, which should support the company’s growth.
Is Sunrun Stock a Good Buy?
Analysts are optimistic about Sunrun. On TipRanks, RUN has a Strong Buy consensus rating based on 13 Buys and two Holds. RUN’s average price target of $47.07 implies upside potential of 28.7%.
Besides hedge funds, Sunrun stock has a positive signal from hedge fund managers, who bought 572K RUN shares in the last quarter. However, due to negative indications from insiders, who sold RUN stock worth 713.1K in the last three months, Sunrun carries a Neutral Smart Score of six out of 10.
Bottom Line
The surge in power usage and fear of blackouts provide ample growth opportunities to conventional and renewable energy companies. California’s dependency on natural gas as an energy source and transition toward renewable power like solar augur well for both EQT and Sunrun.
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