Jefferies analysts aim to raise their price target on shares of renewable energy company Sunrun (RUN), believing its share value could double as residential consumers begin their transition to solar energy sources.
Jefferies US Renewables Analyst Dushyant Ailani discusses the growth Sunrun can see in the space as it chases tailwinds on the Biden administration's investments into clean energy.
"The costs for [solar] storage have been trending lower, and... we see some up side to to Sunrun on that. Basically the company has talked about lowering their hardware costs, which potentially includes storage as well, by roughly 18%," Ailani tells Yahoo Finance. "So we are seeing those costs trend lower, and that's going to obviously add more margin upside to the company."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
RACHELLE AKUFFO: Jefferies is raising its price target on Sunrun, saying the company's stock price could double over the next 12 months. The solar energy company expects to see a rebound from 2023, taking advantage of growth in the residential solar market as it switches to solar energy storage. Let's bring in Dushyant Ailani, Jefferies US renewables analyst to discuss more about the solar energy space. Good to have you on the show here.
DUSHYANT AILANI: Thank you.
RACHELLE AKUFFO: What are you seeing that's really got you enthused about where Sunrun could go from here?
DUSHYANT AILANI: Sure. So major markets in the US like in California, they're going through a transition to a net metering policy. That's basically incentivizing adoption of storage. In the fourth quarter, for example, storage attach rates for Sunrun were 45% versus 15% in the beginning of the year. And then in 2024, we expect Sunrun to increase the storage capacity by roughly 75% year-on-year. And adding that storage is basically accretive to Sunrun's net subscriber value by several thousand dollars.
RACHELLE AKUFFO: And what about the cost of solar storage? How have you seen those price dynamics affecting Sunrun versus, say, other solar companies?
DUSHYANT AILANI: So for storage, the costs have been trending lower. And also we see some upside to Sunrun on that. Basically, the company has talked about lowering their hardware costs, which also includes potentially storage as well by roughly 18%. So we are seeing those costs trend lower. And I think that's going to obviously add more margin upside to the company.
RACHELLE AKUFFO: And in terms of the impact of the Inflation Reduction Act, some of these tax credits, are we seeing of those who have it available to them, are they taking full advantage of it or is there still a lot more upside there?
DUSHYANT AILANI: For Sunrun, there is definitely more upside to that. So there are three kind of adders that we can talk about for Sunrun. One is just the domestic content adder, the low income adder, and then as well as just a couple more adders for them. So I think specifically for Sunrun, you could see an additional like roughly $765 if they apply domestic content to it. So I think that is yet to play out for them in the subscriber value. And I think that's where we see some upside as well.
RACHELLE AKUFFO: And of course, I have to ask you about competition with China. I remember solar panel tariffs was one of the initial things that actually ended up having that issue between the US and China at the very beginning of the trade war here. But how do you see competition in this space when it comes to solar now?
DUSHYANT AILANI: I think that challenge is-- or that challenge is still there. I think that competition is still there. This being an election year is very pivotal for the solar industry as well depending on how tariffs play out on China. The Biden, administration they had placed a moratorium on solar panel inputs two years ago. And that allowed imports of panels into the US from countries like Vietnam, Cambodia, Thailand, Malaysia.
And now that moratorium comes to end in June of 2024, this year. So it's yet to see or play out how and what the administration does to add back those tariffs. But if they do add back those dollars, that should be a potential catalyst for solar module manufacturers in the US.
RACHELLE AKUFFO: And in terms of potential headwinds, obviously being in an election year, depending on who's who ends up being president, in terms of the push, you have President Biden still pushing clean energy. But then of course, you have former President Trump really not interested in investing on that side of it. Is that something that you've built into the base case as well from where Sunrun goes from here?
DUSHYANT AILANI: So I think some of the pushback that we get from investors is what's going to happen to the IRA. And I think there are many conflicting views out there on what's going to happen with the IRA. So I think that's kind of yet to play out.
But if you look at, well, not necessarily Sunrun but some other solar panel manufacturers like First Solar, for example, they are establishing the manufacturing capacity in red states like Alabama, which are heavily tilting towards Trump. So when and if Trump comes to power, I think that's going to be an important to see all the decisions he makes that could potentially impact jobs in red states.
