The rally for alternative-energy stocks is likely to continue next year, analysts at JP Morgan said Wednesday, choosing shares of solar-power companies SunRun Inc. and Sunnova Energy International Inc. as their top picks.
The industry “remains in the early innings of adoption, and we believe there is further upside potential in the stocks as estimates are potentially revised higher,” the analysts said in a note. “While we do not expect a similar performance as 2020, we expect our coverage to outperform the market.”
Among the catalysts are “more aggressive government support” under President-elect Joe Biden and falling costs of renewable energy.
Profits at Sunrun /zigman2/quotes/205021014/composite RUN +7.93% and Sunnova /zigman2/quotes/213414922/composite NOVA +7.17% are likely to accelerate in 2021 as the companies benefit from installation volume growth, declining customer acquisition costs, and declining cost of capital, among other factors, the analyss said.
SunRun would also benefit from synergies from its recently closed deal to buy Vivint Solar, the analysts said. The stock has underperformed the market since the October closing of the deal, but now that overhangs are removed the stock is expected to outperform.
The analysts increased their price target on SunRun and Sunnova to $79 and $44, representing upsides of 36% and 16%, respectively.
The analysts picked Hannon Armstrong Sustainable Infrastructure Capital Inc. /zigman2/quotes/201124237/composite HASI +1.28% as their top “value” idea, saying that the company, a real estate investment trust that finances residential solar and other alternative-energy projects, benefits from its appeal to Environmental, Social and Governance (ESG) and renewable-energy investors and enjoys “significantly lower technology risk within our coverage.”
Collectively, the alternative-energy stocks in JP Morgan’s basket, which include Tesla Inc. /zigman2/quotes/203558040/composite TSLA -0.99% , Nikola Corp. /zigman2/quotes/208704275/composite NKLA -8.22% and other 2020 highflyers, are up around 200% this year, compared with gains around 14% for the S&P 500 index.
Among all their optimism, the analysts downgraded Bloom Energy Inc. /zigman2/quotes/209802424/composite BE +4.39% stock to their equivalent of hold, from buy, mostly on valuation. Bloom’s shares are up more than 300% this year, and now looks fairly valued, the analysts said.