M UpdateClean Tech | North AmericaTactical Thoughts into Earnings We highlight our thoughts on the various clean energy sub-sectors within our coverage as we head into earnings. Morgan Stanley & Co. LLCAndrew S PercocoEquity Analyst Andrew.Percoco@morganstanley.com +1 212 296-4322 Maximillian L AdelmanResearch Associate Max.Adelman@morganstanley.com +1 212 761-2534 Asmita BaskarResearch Associate Asmita.Baskar@morganstanley.com +1 212 761-5994 Clean TechNorth AmericaIndustry ViewAttractiveBelow we highlight noteworthy earnings dynamics and catalysts to watch throughout our coverage.Residential Solar Installers: We expect mixed messaging across the residential solar installer group through 4Q23 earnings. On the positive side, we expect installers to highlight falling solar panel, inverter, and battery prices as a growth accelerator/margin expanding opportunity for 2024. However, ongoing NEM 3.0 challenges may serve as a growth impediment for installers with significant exposure to California (RUN and SPWR). • NOVA (=): We expect NOVA to reiterate the 2024 customer growth, earnings, and funding guidance that it provided during 3Q23 earnings, which should lead to a relatively in-line quarter for the company. Ongoing pricing increases should lead to an expanding IRR-WACC spread.• RUN (=/-): We expect RUN to hit the midpoint of its MW growth guidance in 2023 and stabilize NSV in 4Q23. Moving to 2024, we expect RUN's MW growth to slow to -12% (vs. +3.75% in 2023), driven by challenges in CA. We could see modest upside to our estimates if RUN continues to take share as the industry switches to a TPO model but we are taking a more conservative view into earnings given the longer-than-expected demand recovery under NEM 3.0. We also expect the company to initiate battery storage growth for 2024 following its strategic pivot towards a "storage-first" company during 3Q23 earnings. Lastly, we expect a modestly improving NSV through 2024 as the company pivots to a storage-heavy model and as it partially benefits from falling component prices.• SPWR (-): We see risk to the downside to estimates in 2023 given the going concern warnings, which has likely impacted its ability to operate under "normal" conditions with business partners. Its recent restructuring plan could allow for platform investment savings, but we remain more cautious on the company's ability to meaningfully expand its margins in 1H24. Upcoming credit waiver deadline and likely equity raise remain an overhang. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other ...
