Shares of residential solar installer Sunrun Inc (NASDAQ:RUN) jumped as much as 11.1% in trading Tuesday after being upgraded by an analyst. At 2:55 p.m. EDT shares were still up 10.5% on the day.
Goldman Sachs' Brian Lee upgraded Sunrun to a buy rating and put a $10 price target on the stock. The price target implies a 71% gain in a year from Monday's closing price.
Some of the gain was on speculation that merger and acquisition activity could pick up in the solar space. It's not clear what company would buy a company like Sunrun, but Lee thinks residential solar companies could see a buyout.
Stock upgrades can often lead to short-term pops in a stock, but unless company performance picks up or an acquisition is announced we could see shares fall again. What's strange about the Sunrun upgrade is that this is one of the highest cost suppliers in the industry and it's betting on solar leasing when the entire industry is moving to cash and loan sales.
Fundamentally, I don't see Sunrun's business being attractive given the cost structure and market trends, but I also question what company would buy it. Utilities have an abysmal track record buying into the residential market and panel manufacturers aren't going to vertically integrate given bigger opportunities elsewhere. As a result, I don't think this pop is a buying opportunity and shares could give back a lot of the day's gains very soon.