In the past month, solar stocks have underperformed in the broader market, but there are bargains in the sector that could be picked up amid improving fundamentals, according to an analyst at Goldman Sachs.

The Solar Stock Analyst: Brian Lee upgraded shares of Sunrun Inc (NASDAQ:RUN), with a $77 price target. On the other hand, the analyst downgraded SunPower Corporation (NASDAQ:SPWR) from Buy to Neutral and reduced the price target from $42 to $32.

The Solar Stock Theses — 3 Key Reasons to Be Positive On Solar Stocks: The solar industry is seeing solid fundamentals and have had momentum since the start of the year, analyst Lee said in a note. U.S. solar demand, the analyst said, is back to pre-pandemic levels.

"Our ongoing channel checks with downstream distributors and installers also resonate with our expectations that demand heading into 2021 remains strong," Lee wrote in the note.

Secondly, financing conditions are robust for the solar industry, despite rising interest rates, the analyst said. Additionally, President Joe Biden's focus on clean energy infrastructure is seen as a positive catalyst, according to Lee.

Although solar stocks aren't really cheap in absolute terms, the average P/E has compressed by about seven turns since the beginning of 2021, the analyst said. This is despite an aggregate 8% upward revision to earnings estimate, he added.

Goldman highlighted Sunnova Energy International Inc (NYSE:NOVA), Enphase Energy Inc. (NASDAQ:ENPH) and Array Technologies Inc (NASDAQ:ARRY) as top solar ideas.

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Bullish On Sunrun's Fundamentals: Given the major sell-off in Sunrun shares due to macro factors, the risk-reward has become more attractive at the current levels, analyst Lee said.

Lee is bullish on Sunrun's fundamentals, and the company is likely to outpace in the near term, thanks to market expansion.

Potential positive financing catalysts and ongoing growth acceleration, the analyst said, will buoy shares in the near-to-medium term.

SunPower's Risk-Reward Balanced: SunPower shares are up over 214% since they were added to the Americas Buy List on June 17, 2019, compared to a mere 49% advance by the Russell 2,000 Index, Lee noted.

The stock, the analyst said, has increased over eight times in the past year.

Goldman's revised $32, 12-month target, Lee said, implied less upside from here versus residential solar peers as well as relative to other solar names under coverage.

"While fundamentally we continue to see SPWR well-positioned within the solar space, we now see risk-reward as being more balanced at these levels relative to Buy-rated peers with similar resi solar exposure such as NOVA, as well as ENPH," the analyst wrote in the note.

Solar Stocks Price Action: At last check Tuesday afternoon, Sunrun was down 0.25% to $57.24 and SunPower was down 5.79% to $32.45.

Related Link: Looking Into SunPower's Return On Capital Employed

(Photo: Emojione via Wiki Commons)