By Elsa Ohlen

President Donald Trump's tax and spending bill is upending the solar-energy market, with both positive and negative effects.

Early Wednesday, Jefferies analysts led by Julien Dumoulin-Smith cut their recommendation on Sunrun stock. They upgraded shares of First Solar, highlighting the divergence between residential and utility-scale solar.

Just days after Sunnova, once a leading installer of rooftop panels, filed for bankruptcy as it struggled with debt and persistently weak demand, Dumoulin-Smith cut his rating on rival Sunrun to Underperform from Hold. He lowered his target for the stock's price to $5 from $6.

Sunrun shares fell 4.5% to $8.46 in midmorning trading Wednesday.

"Budget reconciliation has residential solar on the chopping block," Dumoulin-Smith said, referring to how the Republican tax-and-spending bill now making its way through Congress could overhaul or even eliminate the clean-energy tax credits in former President Joe Biden's Inflation Reduction Act. Under the IRA, solar panels are eligible for tax credits worth some 30% of the project's value.

While Dumoulin-Smith expects changes to the IRA to become less damaging to the industry as the bill moves through the Senate, he sees limited room for gains by residential solar players like Sunrun. Jefferies now rates all the residential solar stocks it covers -- Sunrun, Enphase Energy, and SolarEdge Technologies -- at Underperform.

Meanwhile, First Solar stock rose 2% to $167.84 as Jefferies upgraded it to Buy from Hold. Dumoulin-Smith raised his price target to $192 from $157.

Dumoulin-Smith said he is "most constructive" about utility-scale solar because the IRA isn't as critical for the subsector. "We see a temporary pullback around IRA for utility-scale solar and see FSLR's increasingly U.S.-made product as benefiting uniquely from very strict Chinese-import restrictions."

First Solar is now the "only game in town" as a result of tariffs, he said, arguing that will giving the company greater pricing power for modules sold in the U.S.

The stock's valuation looks compelling too, he said. It is currently trading at 7.5 times forward earnings, compared with peers' 14.8 times.

Write to Elsa Ohlen at elsa.ohlen@barrons.com

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June 11, 2025 11:50 ET (15:50 GMT)

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