This week witnessed a significant downturn for Sunnova Energy, a leading residential solar company, as investor confidence waned following the announcement of a stock offering plan.
Sunnova’s shares plummeted by 26.7% on Thursday after the disclosure of a $100 million at-the-market stock offering program. This marked the most severe single-day decline for the company since March 2020 and its second worst day since its initial public offering in 2019, resulting in a staggering $382 million reduction in Sunnova’s market capitalization.
In response to the market reaction, CEO John Berger moved to allay investor concerns by asserting the robustness of Sunnova’s financial position and clarifying that the company currently has no immediate plans to utilize the stock offering to raise capital. “This is just an arrow in the quiver just in case, and the ratings agencies like to see it,” Berger elucidated during an interview with CNBC on Thursday.
“We don’t need to deal with the ratings agencies anytime soon, but it’s a smart thing to have — but we don’t need it.” “I’m going to focus on generating our cash rather than tapping into an equity, particularly something that’s now 25% discounted,” Berger added, highlighting Sunnova’s cash reserves, which stood at $494 million as of December 31, 2023, according to its quarterly report.
The announcement followed Sunnova’s posting of a widened net loss of $234 million in the fourth quarter, compared to $62 million during the same period a year prior. This trend reflects the broader challenges facing residential solar companies amid elevated interest rates, which have inflated installation costs for households.
Berger and Sunnova CFO Robert Lane characterized the stock offering as a prudent measure, with Lane informing analysts during the company’s earnings call that Sunnova does not foresee the need to raise capital through 2026.
In hindsight, Berger expressed reservations about the timing of the stock offering plan, acknowledging its costly implications: “Good housekeeping sure was expensive,” he remarked to CNBC following Thursday’s market downturn. Additionally, Sunnova is actively exploring asset sales and implementing cost-cutting measures, leveraging automation and artificial intelligence to prevent an expansion in the company’s workforce, Berger disclosed during the company’s conference call.
Sunnova’s recent woes reflect broader challenges within the solar sector, with competitor Sunrun experiencing a 22% decline this week after reporting another quarterly loss. Similarly, SolarEdge saw its stock tumble nearly 18% following weak guidance for the first quarter.
Looking ahead, the solar market faces an uncertain trajectory, as hopes for aggressive interest rate cuts to stimulate sector growth have dwindled. Federal Reserve officials have signaled a cautious approach to rate adjustments, dampening previous expectations for imminent reductions. Berger, however, remains optimistic about Sunnova’s prospects for the year, noting the company’s ability to adjust pricing in response to market dynamics.
He emphasized Sunnova’s strong pricing power and dismissed concerns about interest rate fluctuations, citing increased charges by major utilities. Addressing previous reports of consumer complaints regarding predatory sales tactics in Texas, Berger underscored Sunnova’s commitment to resolving such issues and reiterated the company’s adherence to legal standards, emphasizing that denying sales based on age is unlawful.
“Whether our dealers did something or not, we typically have gone through and made sure that we’ve made good with the customer. In some of these cases, it’s difficult to find injury,” Berger remarked. “There’s a lot of alternative facts that have been put forth in those cases, but it doesn’t excuse us from continuing to try to do better and we’re going to continue to do that.”
