The Solar Sector: A Promising Investment Opportunity
Truist Securities believes it's the opportune time to invest in Sunnova Energy and Enphase Energy. Discover why these companies are poised for success in the solar sector.
The solar sector has faced significant challenges over the past year. However, Truist Securities believes that now is the opportune time to invest in Sunnova Energy International and Enphase Energy, as these companies strive to reduce their costs.
Truist analyst Jordan Levy has upgraded both Sunnova and Enphase stocks to a Buy rating from Hold. Additionally, he has raised the price target for Sunnova to $18 (from $10) and Enphase's target to $145 (from $85).
In premarket trading on Tuesday, Sunnova's shares soared by 9% to $11.39, while Enphase experienced a 4.8% surge, reaching $112.20.
Over the past year, the Invesco Solar ETF has witnessed a staggering decline of 46%. In contrast, the S&P 500 has enjoyed a 21% gain. This decline can be attributed to the adverse effects of historically high interest rates on the residential clean energy sector. As a result, the demand for solar panels has dwindled, making it more expensive to finance large home projects.
However, Levy strongly advises investors to seize this opportunity. With expectations of the Federal Reserve cutting interest rates in 2024, market sentiment leans towards positivity. According to the CME Fed Watch tool, 42% of traders estimate a 25-basis point cut in interest rates at the central bank's March policy-setting meeting.
Sunnova's stock has already suffered a 31% drop this year, amounting to a significant 48% decline over the last 12 months. Despite expecting some volatility in the solar sector, Levy sees considerable potential for Sunnova's stock value to rise in the near future.
Investment analyst, David Levy, expresses optimism regarding NOVA's position in the residential solar market. Levy believes that as rate cuts progress and the U.S. housing market gains stability, NOVA (Sunnova) emerges from the downturn uniquely positioned for success.
NOVA has set ambitious goals for capital growth this year. During Sunnova's third-quarter earnings call in October, Chief Executive William Berger emphasized the company's focus on liquidity, profitability, and cash flow. By strategically raising prices, reducing working capital needs, and cutting operating expenses, Sunnova aims to consolidate its position in the market.
Levy suggests that Enphase's stock already accounts for potential downsides. With a decline of 19% this year and 51% over the last 12 months, the market has priced in the challenges faced by the company. However, Levy remains positive about Enphase's recent cost-cutting measures, such as its December announcement of headcount reductions.
Levy anticipates that resi solar companies will focus on reducing operating costs and driving long-term margin improvements in upcoming earnings reports. Given the continued pressure on demand and increasing investor preference for cash flow over growth, these measures will be crucial for success.