Shares of the San Francisco solar energy company were rising 5.11% to $60.31 on Tuesday.
Analyst Brian Lee said in an investors' note that he see concerns around interest rate risk as being overstated with Sunrun's stock down roughly 40% from January peaks, "given the company’s growth is accelerating, while absolute yields remain quite low, especially when considering the company’s potential to refi old debt."
Lee, who has a $70 price target on the shares, said Sunrun “delivered a record high customer margin exiting the year."
"We believe U.S. solar demand is back to, if not actually trending above, prior expectations for growth before the onset of the pandemic in early 2020," the analyst said. "Our ongoing channel checks with downstream distributors and installers also resonate with our expectations that demand heading into 2021 remains strong."
Lee said he continues to see significant upside to buy-rated names in the group and cited Sunnova Energy International (NOVA) - Get Sunnova Energy International Inc Report, Enphase (ENPH) - Get Enphase Energy, Inc. Report and Array Technologies (ARRY) - Get Array Technologies Report "as top ideas."
Lee said the solar stocks have shown solid fundamentals that have momentum to start 2021, along with a healthy financing backdrop, and potential for policy catalysts, particularly in the U.S.
The Biden administration has signaled its support for solar and other forms of clean energy.
However, Lee noted that since the Democrats have only a slight majority in Congress, "the prospects for wide-ranging bills with significant clean energy focused policy actions should still face significant resistance, as noted by our economists, and it remains to be seen what ultimately will come out of DC, in terms of incremental policy support for renewables and solar."
"In our view, key catalysts for the sector to watch include the GREEN Act, the CLEAN Act, and an energy storage ITC (standalone or included elsewhere), among others," the analyst said.
Separately, Lee reduced SunPower (SPWR) - Get SunPower Corporation Report to neutral from buy given the company's year-to-date outperformance "and less upside compared with resi solar peers from these levels."
On Monday, Susquehanna Financial analyst Biju Perincheril initiated coverage of Sunrun with a positive rating and $75 price target.
Last week, Sunrun and other solar companies lost ground after California’s three biggest utilities proposed changes in the state’s solar program.
The changes would bring higher connection charges and lower rebates for homeowners who put up solar panels. The recommendations would apply just to new installations.