Wells Fargo is getting more bullish on shares of First Solar, Sunnova Energy and Sunrun, expecting margins to improve as supply chains ease and raw material costs decline. Analyst Michael Blum upgraded all three clean energy stocks to overweight in a note to clients Friday, citing tailwinds from growing demand for solar amid Europe’s energy crisis and recently passed Inflation Reduction Act in the US “While continued Fed tightening in early 2023 will likely act as a near-term headwind, the fundamental and regulatory backdrop is much improved in 2023 and beyond,” he wrote. “With most regulatory overhangs in the rearview mirror, strong underlying demand (especially in Europe), and legislative support from IRA, we turn more bullish.” Shares of all three stocks gained more than 1% before the bell. An easing of regulatory headwinds, and improving margins and supply chains should also benefit these stocks in the months — and years — ahead, Blum said. Benefits from the legislation have also yet to materialize in stock prices, he added. Shares of First Solar posted a solid run in 2022, surging nearly 72% and benefitting from a shift towards alternative energy amid nonstop oil market volatility. Many have also come to view the solar stock as a major beneficiary of tax credits from the government’s climate bill. “While the low-hanging fruit tied to IRA is likely discounted in the stock at this point, the potential for continued capacity expansions over the coming years could drive further upside,” Blum wrote, while upping his price target on shares to $188, reflecting 29% upside from Thursday’s close. Blum expects Sunnova and Sunrun, meanwhile, to benefit from their power purchase agreement models poised to gain in the next year. “Various adders (eg low-income projects, domestic content, and energy community) are only available to solar financing deals structured as lease/PPAs,” Blum said. This should allow both companies to capture more tax credits and beat out smaller residential solar providers. Blum raised his price target on Sunrun to $32 a share, while trimming expectations for Sunnova to $24. That implies a 44% and 40% upside from Thursday’s close for each stock. — CNBC’s Michael Bloom contributed reporting
