Is the worst of the market’s slump behind us? Based on trading so far this week, the answer might be no.
The constant stream of unsettling developments has had the world teetering precariously on edge. So far, the coronavirus has claimed the lives of more than 3,000, with the total number of infections globally surpassing 89,000.
Among the deluge of alarming headlines, the canny investor can seek refuge in one undisputed fact: Even in times of crisis, there are still plenty of Buy-rated choices available – if you’re willing to look a little deeper. We’ve used the Stock Screener tool from TipRanks to pull up two such stocks with Strong Buy consensus ratings. It also doesn’t hurt that these two names just saw their price targets get a major boost. Let’s take a closer look.
Sunrun, the largest residential solar panel installer in the US, reported its quarterly results on February 27, and the results were not particularly bad. Total revenue grew to $243.9 million, up $3.8 million, or 2%, compared to the fourth quarter of 2018. Not to mention it beat the estimate’s call for $225.8 million. The bottom line result was a disappointment for investors: Sunrun reported EPS of $0.10, lower than Wall Street’s expectation of $0.12.
In the quarter, the company also added 15,600 customers, as many customers as the next two largest residential providers combined have. The figure also represents 117 megawatts of deployments, a 9% sequential increase from the third quarter and the highest quarterly volume in Sunrun’s history.
Credit Suisse’s Michael Weinstein is clearly bullish on the solar panel provider. The 4-star analyst recently pushed up his price target for Sunrun from $24 to $30 while maintaining his Outperform rating. The new figure implies potential upside of 51%. (To watch Weinstein’s track record, click here)
Weinstein explained his thesis, “We reduce the asset level discount rate to ~5% from 6% due to higher leverage and lower yields. We also reduce the corporate discount rate to 9% (from 12%) in line with solar equipment providers, and increase terminal value multiple to 2x (from 1x) to be in line with street-implied price/book valuations. Our solar deployment growth forecast and estimates are unchanged. Our assumptions are still conservative as latest ABS suggests project level cost of capital less than 4.5% (<4% cost of debt, ~90% advance rates, and assuming ~9% cost of equity), especially as we do not yet include any value from storage enabled grid services.”
Overall, with 4 Buys and 1 Hold, Sunrun receives a Strong Buy consensus rating from the Street. Gains in the shape of 25% could be lining investors’ pockets should the average price target of $25 be attained over the next year. (See Sunrun stock analysis on TipRanks)
Sunnova Energy International Inc (NOVA)
Sunnova Energy is a fellow company that provides residential solar and energy storage services. The Houston, Texas-based company has grown exceptionally so far this year; In 2020, NOVA’s share price is up by an impressive 64%. Clearly, with the climate crisis intensifying and the traditional energy sector reeling from the effects of the coronavirus, the renewable energy sector is gaining traction.
The company’s latest earnings call was the opposite of Sunrun’s. EPS of -$0.21 beat consensus estimates by $0.08. However, revenue of $33.61 million, although reflecting a year-over-year increase of 33%, slightly missed estimates by $0.29 million.
Additionally, in Q4, the company added 6,000 new customers, a 20% increase from the prior quarter and an 84% increase from the fourth quarter in 2018. For all of 2019, Sunnova’s customer base grew at a rate of 30%.
In further recent developments, Sunnova announced recently that the company is launching a new product, which packages together financing for roof replacements with a Sunnova solar or solar and battery storage system under one single finance or loan agreement. The new offering should streamline the process of installing a Sunnova system.
Weinstein, who also covers Sunrun, believes Sunnova’s sales are ramping while capital costs are declining. The 4-star analyst said, “Management expects no need for external equity or holdco debt to finance growth in 2020/21 as ABS and tax equity financing cover new customer creation costs (including working capital, dealer payments, safe harbor interest costs). NOVA expects positive cash flow from ops in 2021/22, earlier than previously expected due to stable project economics, lower cost of capital, and volume growth.”
Down to the nitty gritty, Weinstein reiterated an Outperform rating on Sunnova shares, while boosting his price target from $14 to $21. Investors stand to take home a 14% gain, should the target be met over the coming months.
A full house of 6 Buys means Sunnova receives a Strong Buy consensus rating from the Street. The average price target comes in at $20.33, indicating nearly 11% upside potential. (See Sunnova stock analysis on TipRanks)