Down 68% From Record Highs, Is Sunrun Stock a Buy?
Companies part of the solar
energy segment have grossly underperformed the broader markets in
2021. For example, while the S&P 500 Index has surged by
24.6% year-to-date, Sunrun (NASDAQ: RUN)
stock is down 50% since the start of 2021.
Sunrun is a company valued at a
market cap of $7 billion. It is engaged in the design, development,
installation, sale, ownership and maintenance of residential solar
energy systems in the U.S. The billion-dollar entity also sells
solar energy systems and products that include panels and racking
as well as solar leads generated to customers.
Sunrun offers battery storage
with solar energy systems and its primary customers are homeowners.
It sells products through a direct-to-consumer approach across
online retail, mass media, digital media as well as its partner
Despite the recent pullback in
RUN stock, it has more than tripled in market value since its IPO
six years ago. Let’s see if Sunrun should be part of your portfolio
The bull case for Sunrun
Sunrun has increased its revenue
from $529.7 million in 2017 to $922.19 million in 2020. In the last
12-month its sales stood at $1.49 billion. The global shift towards
clean energy solutions should positively impact the top-line of
Sunrun and peers in the upcoming decade.
The company added 30,698
customers in Q3, bringing the total number of customers to 630,441,
indicating a year over year growth of 20%. Its annual recurring
revenue stood at $787 million with an average contract life
remaining of 17.3 years. Sunrun ended Q3 with net earning assets of
$4.5 billion and $941 million in cash.
Sunrun emphasized that the
residential solar market is massive and remains unpenetrated. In
case the industry can grow its customer base by 15% each year in
the next decade, it will still penetrate just 17% of the households
in the U.S.
Sunrun is the number one player
in the U.S. residential market and accounts for less than 1% of the
total electricity market in the country. At the end of Q3, Sunrun
accounted for 3% of residential solar penetration in the United
Sunrun is part of a nascent but
rapidly expanding addressable market. It is well poised to benefit
from multiple secular tailwinds, given the fragmented nature of
this industry, customer subsidies and no advanced product offerings
The costs of solar modules and
batteries have declined significantly in the last decade and this
trend is likely to continue going forward. According to market
experts, the cost of installed solar panels will fall by 34% and
the cost of batteries will decline by 64% in the next 10
Risks associated with RUN stock
Last week, California regulators
disclosed plans to revise the current net metering (NEM) framework
which will be replaced with a net billing tariff. Solar companies
including Sunrun have however warned that these changes could
increase the prices of rooftop solar in the state of
Following the news, investment
bank KeyBanc downgraded RUN stock from “Overweight” to
“Sectorweight”. In the last five trading sessions, RUN stock has
lost over 20% in market value.
Analysts tracking Sunrun
expect the company to increase sales by 71.6% to $1.58 billion in
2021 and by 15.5% to $1.83 billion in 2022. Its adjusted loss per
share is focused to narrow from $1.06 per share in 2020 to $0.36
per share in 2022.
RUN stock is still unprofitable
and is valued at a forward price to 2022 sales multiple of almost
4x which is expensive, especially if its sales estimates are not
met in Q4 and beyond.
The final takeaway
Sunrun is a solid long-term bet
given its expanding addressable market, improving bottom-line and
pullback in its stock price. Analysts tracking RUN stock expect it
to more than double in the next 12-months, making it a top bet for
contrarian and growth investors.
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