Shares of rooftop solar installer Vivint Solar Inc. (NYSE:VSLR) jumped as much as 21.8% on Tuesday after being upgraded by an analyst. Shares were still up 19% at 12:26 p.m. EDT
Goldman Sachs analyst Brian Lee upgraded Vivint Solar's stock from neutral to buy, and increased his price target from $3.50 to $6.00 per share. He thinks the company's move to cash and loan sales is going to improve its business, and sees Vivint as a good buyout target as financing for renewable projects and M&A improves.
His buyout speculation is likely what investors latched onto today, given the huge move in the stock. But right now, it's just speculation.
What's strange about the upgrade and the buyout speculation is that the solar power industry is moving away from Vivint's national-footprint model pretty rapidly. Small, regional installers are gaining market share and have much lower cost structures, allowing them to undercut large installers like Vivint. With that dynamic in place, it's hard to see who would want to buy the company, unless they're just buying underlying solar contracts and splitting up the business.
I wouldn't jump on today's pop because the speculation could fade, leaving shares to fall quickly. And I would be more worried about the longer-term market trends moving away from Vivint Solar. Proceed with caution, because this company knows that buyouts aren't always as attractive as they appear.