Sold-off Sunrun may be due for a comeback as the interest rate tightening cycle nears an end and concerns over borrowing costs recede, KeyBanc said. Analyst Sophie Karp upgraded the solar stock to overweight from sector weight. Her $27 price target implies an upside of 31.3% from where the stock finished Monday. Shares advanced 5.1% in premarket trading. The stock has lost 14.4% this year despite the S & P 500 gaining 8.1% in the same period. Shares have been beaten down since the Federal Reserve began its interest rate hike campaign. “Shares of residential solar companies, including RUN, underperformed materially since the beginning of the tightening cycle, and we acknowledge that the shares have been visibly inexpensive for some time now,” she said in a note to clients Monday. “However, we believe that we have seen the worst of the tightening cycle, and therefore the sentiment should be bottoming at these levels.” RUN .SPX YTD mountain Sunrun Beyond what she called an “attractive” valuation, Karp said the company should be helped because it gained market share in California, a closely watched market. Applications for interconnected project sites in the state were down 22% between the first two months of 2022 and 2023, while Sunrun saw a relatively modest 10% drop. That material gain can help soften the impacts from the broader downturn in performance, which she said can be tied to poor weather and reforms to the net energy metering program. Outside of California, she said the company should grow at a rate consistent with the long-term trajectory elsewhere in the U.S. Karp said the company should be able to reaffirm its earlier guidance of an increase between 10% and 15% in installation capacity in the 2023 fiscal year. The company also offered positive commentary on demand during its first-quarter earnings call. Data shows that deals done in the second half of 2022 and so far in 2023 had financing costs mostly in line with levels seen in 2018 and 2019, though the deals were priced at higher rates than the lows seen in 2021. She said the company should see a “normal” long-term spread between 200-250 basis points, while noting the sentiment around funding should improve as benchmark rates moderate and that “normal” spread is reached. Karp also said the company has underappreciated pricing power that gets overshadowed by those potentially high borrowing costs. She said residential solar companies in particular can execute in higher interest rate environments. The Investment Tax Credit should also help, according to Karp. The government said there would be large areas that would potentially be more lucrative such as Houston, which Sunrun and its peers could target. The tax credit plan also has bonuses for energy communities and low-income customers that can give a boost to companies. Karp was not as bullish on other solar stocks, downgrading both First Solar and Plug Power to sector weight. She said First Solar has likely hit a near-term ceiling, while Plug has tailwinds that make an overweight rating “untenable.” — CNBC’s Michael Bloom contributed to this report.