After soaring last year, renewable energy stocks have seen some correction this year. Solar stocks were no exception. Residential solar installer Sunrun's (RUN 7.05%) stock is 44% off its high while Sunnova Energy International (NOVA 6.73%) stock is 35% off its high this year. Likewise, solar component specialist Array Technologies (ARRY) stock is 45% off its high price in 2021. Analysts, however, see 50% or more upside in each of the three stocks. Let's see if these solar stocks can soar to the levels analysts are expecting.
1. Sunrun: 50% expected upside
Analysts' average price target of $80.20 for Sunrun is nearly 50% higher than its current price. Indeed, there are reasons to be upbeat about Sunrun. As the country's largest residential solar installer, Sunrun's scale and experience give it an edge over other players in the segment. The company has more than 550,000 customers -- the highest among all residential solar installers -- and it continues to expand its customer base.
Sunrun generates recurring revenue from its customers typically over a 20- to 25-year period, as it leases installations rather than selling them upfront. Residential solar's market penetration is less than 3% right now. So, there is a huge untapped market for the company. Moreover, batteries and energy management solutions provide upselling opportunities to Sunrun.
On the flip side, the company's sales and marketing expenses are on the rise, suggesting that the customer growth isn't coming easily. The residential solar installation market is highly competitive and fragmented. In addition to other solar installers, the company's main competition is with traditional utilities. Yet given the huge untapped market and a growing consumer appetite for renewable energy, the company should grow slowly and steadily over the coming several years.
Notably, despite a 46% fall off its high, Sunrun stock is up 250% in a year. Though Sunrun's long-term prospects are bright, a 50% rise from here in a year looks a bit bullish after the stock's run last year.
2. Sunnova Energy: 53% expected upside
Like Sunrun, analysts are predicting handsome upside for the newer, fast-growing player Sunnova Energy Energy. Sunnova grew its revenue by 22% last year -- much higher than Sunrun's 7% growth. In the first quarter of 2021, Sunnova added 8,900 new customers, bringing its total customer base to 116,400. Revenue in the first quarter grew 38% year over year, supported by customer growth.
A huge, untapped market coupled with supportive government policies should support Sunnova's growth in the coming years.
However, like Sunrun, Sunnova Energy also faces high customer acquisition costs. The company's general and administrative costs increased in the first quarter, partly due to personnel costs to support growth. For that reason, a 53% upside, after the stock's 168% rise in last 12 months, looks a bit too optimistic.
3. Array Technologies: 53% expected upside
There is much to like about Array Technologies, a top manufacturer of trackers used in large solar projects. These trackers move solar panels during the day based on the movement of the sun, increasing their energy production by as much as 25%. The demand for the company's products is high and Array grew its revenue by 35% in 2020. The company's adjusted EBITDA grew 32%.
Array Technologies is already profitable and generated $59 million in net income in 2020. The company, which went public in October last year, carried out a secondary offering in March, resulting in a steep fall in the stock's price. However, in a recent presentation, the company emphasized that it doesn't need additional equity funds to grow its business.
Array Technologies' performance and growth prospects look impressive so far. The stock is off 19% from its price after listing in October. It isn't surprising that analysts are upbeat on the stock.