Sunrun and Sunnova Clear Inflation Reduction Act Winners - BofA

© Reuters.

By Sam Boughedda

Sunrun (NASDAQ:RUN) and Sunnova Energy International Inc. (NYSE:NOVA) are clear Inflation Reduction Act winners, according to a BofA Securities analyst.

The analyst reiterated Sunrun's Buy rating and raised the price target to $55 from $40. He also reiterated Sunnova Energy's Buy rating, raising the price target to $45 from $36.

"We believe that those companies directly receiving the government incentives are the clearest financial beneficiaries of the package, which is in many ways are most apparent for the resi solar installers, specifically RUN and NOVA, who retain value of originated assets and the value of the tax credit in lease based products," said the analyst.

The analyst pointed to more tax equity financing as a positive for the companies, with corporate capital freed up.

"RUN / NOVA are both in expansion mode and working capital remains a legitimate constraint – with recurring operating cash from the asset level we do not see any future capital raises for either company against our updated growth estimates and with a clear cut ITC runway," he added.

"In our view, the ITC [Investment Tax Credit] extension offers an unparalleled opportunity for RUN and NOVA to preserve margins through the rest of the decade. Our base case assumption for RUN and NOVA going forward is now that they can readily maintain margins against a backdrop of even more accelerated within resi."