What happened

SunPower (SPWR 1.44%) stock exploded higher in Nasdaq trading Wednesday, with shares up 15.2% as of 11:30 a.m. EDT.

You can probably thank Piper Sandler for that.

Arrow angles up on a green stock chart.

Image source: Getty Images.

So what

Investment bank Piper Sandler initiated coverage of SunPower stock with an overweight rating and a $20 price target, reports StreetInsider.com. In a wide-ranging report focusing on the solar power sector, Piper argues that "deflationary tailwinds, favorable incentives, widespread public support, and innovative financing" helped the distributed solar business (which can perhaps best be thought of as solar panels on rooftops) grow to 23 gigawatts through the end of last year.

Residential solar in particular posted 57% compound annual growth rates from 2010 to 2019. Even so, says Piper, "Residential solar has only penetrated 3%-4% of the addressable market" and "installations could meaningfully increase longer-term" -- especially if the upcoming presidential election ends in a win for Joe Biden.

Now what

In short, Piper Sandler is saying SunPower stock is a growth story in progress. So what could make it grow even faster?

According to the analyst, "One meaningful policy driver for growth" so far "has been the federal solar investment tax credit (ITC) which enables dollar-for-dollar reductions in tax bills for the system owner based on costs." Now, "this credit is currently in the process of being phased down (from 30% last year to 10% in 2022+)." However, "the current expectation is that a Biden presidency would extend the runway of the program at the 30% rate which would support future growth."

The prospect of the federal government continuing to underwrite a major part of SunPower's growth is obviously a positive for SunPower stock -- and this, in a nutshell, is why the stock is rising today.