Sunrun Inc.

RUN Details

Sunrun Inc. (NASDAQ: RUN) is the top solar company player in the U.S with an entire focus on residential solar systems. It provides home solar, battery storage, and energy services to its customers present across 175 cities in 22 states and Puerto Rico.

H1FY21 Result Performance (For the Period Ended 30 June 2021)

• RUN has recorded healthy revenue growth of 87.73% YoY to $735.96 million in H1FY21 on the back of 92% YoY and 83% YoY growth in revenue from customer agreements and incentives, and  solar energy systems and product sales, respectively.   
• Total operating expenses increased significantly by 96.14% YoY to $1,056.25 million in H1FY21. Resultantly, net loss attributable to common stockholders increased to $65.03 million from a loss of $41.52 million in the PCP.
• Net subscriber value stood at $5,574 in Q2FY21 and the generation of the total value was $122 million during Q2FY21.
• The company has added 26,110 customers in Q2FY21, including 21,894 subscriber additions that took its customer base to 599,743 as of 30 June 2021.

Consolidated Income Statement (Source: Company Reports)

Recent Update

Introduced Employee Education and Upskilling Program: The company, on 25 August 2021, has introduced a new fully-funded employee education and upskilling program – PowerU. This program is aimed at training and developing its workforce for the fast-growing clean energy industry.

Celebrated Accomplishment of Solar Installation for Renters in San Joaquin Valley: Self-Help Enterprises and Sunrun, on 16 August 2021, celebrated the completion of a new solar installation to 60 affordable rental homes at Sand Creek rental community in the San Joaquin Valley.

Outlook

The company is progressing as per the plan to deliver a break-out year. It is capitalizing on its broad-reach and multi-channel strategy in accelerating and capturing consumer interest. It is also focused on implementing the ongoing integration of Vivint Solar and navigating a dynamic supply chain environment. Emboldened by accelerating consumer interest,  the management has raised its growth guidance for solar energy capacity installed to 30% from its earlier prediction of 25% to 30% growth for 2021. Additionally, it now expects to achieve a total value generated in the range of $700-750 million in 2021 against its earlier guidance of over $750 million mainly due to the adjustments pertaining to the effects of accelerating growth and timing of cost recognition. It reiterated garnering cost synergies resulting from the acquisition of Vivint Solar to be around $120 million in run-rate synergies by the end of 2021.

Key Risks

The company’s operations are exposed to risks of the impact of COVID-19 on its business and operations as well as the effective integration of Vivint Solar. Further, fluctuations in  electricity production, retail prices as well as changes in regulations and policies, among others are some other potential risks.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Orange Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and has  a target price that reflects a rise of low double-digit (in % terms) has been arrived. A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering its higher operating costs, negative earnings in Q2FY21 as well as higher debt levels.

For the purposes of relative valuation, peers like Vicor Corp (VICR.OQ), Beam Global (BEEM.OQ), among others have been considered.

Considering traction in sales volumes along with record installation in Q2FY21, upgrade in guidance, expanding market reach, healthy liquidity position, and decent growth outlook, we give a “Buy” recommendation on the stock at the current market price of US$45.54 per share, down by 3.9% on 3^rd September 2021.

SunPower Corp

SPWR Details

SunPower Corp (NASDAQ: SPWR) is engaged in designing and manufacturing solar panels and systems for all-in-one residential and commercial solutions.

Q2FY21 Results Performance (For the Quarter Ended July 4, 2021)

• The company’s overall revenue increased to $308.93 million in Q2FY21 from $217.67 million in Q2FY20 driven by continued strong demand growth across segments including residential and commercial.
• SPWR’s sustained execution across its residential and commercial businesses translated into 40% growth in megawatts compared to the year-ago period and it doubled its gross margin per watt.
• The company has added 13,000 customers in its Residential and Light Commercial business and residential bookings increased by 16% sequentially and 67% YoY.
• Strong bookings momentum was witnessed in the Commercial and Industrial Solutions business, up over 20% YoY.

Key Data (Source: Company Reports)

Recent Updates:

Partnered with Wallbox: The company, on 29 July 2021, has partnered with Wallbox, a leading electric vehicle (EV) charging solutions provider. This strategic alliance will enable SPWR in offering at-home EV charging as well as solar and/or storage system installation to new customers. It will also aid in providing its residential customers a simple and cost-effective integrated solar, storage, and EV solution. SPWR will become the preferred solar and storage provider and EV charger installation provider for Wallbox customers. The company stated that the EV business partnership with Wallbox is expected to augment the addressable market by $15 billion.

SunPower and Woodside Homes Join Hands:  As per the agreement, Woodside Homes, one of the leading homebuilders in the U.S. is providing SunPower® solar and SunVault™ battery storage systems to owners and buyers across its Northern California communities. SunPower enjoys the benefit of being Woodside Homes' exclusive solar and storage partner in the region.

Outlook

SPWR forecasted attaining GAAP revenue between $325 to $375 million in Q3FY21 with MW recognized to stay between 125 MW to 150 MW. Further, it expects to achieve adjusted EBITDA in the range of $21 to $31 million due to tremendous improvement in linearity.

For FY21, the company forecasted of achieving GAAP revenue between $1.41 to $1.49 billion and GAAP net income in the range of $40 to $60 million. It expects MW recognized to remain between 540 MW to 610 MW. However, the company has retained its guidance on adjusted EBITDA at $110 to $130 million that includes up to $10 million incremental spending  on customer experience and digital initiatives, which would be aiding in further boosting the growth of its residential business in 2022 and beyond.

A recent survey by the company revealed that high-profile grid failures, power outages, and mounting electricity bills in the US are resulting in robust adoption of solar with attached storage.

Key Risks:

The company’s business operations would get adversely affected by changes in international trade policies, tariffs, or trade disputes. It relies on sustained availability of third-party financing arrangements for its projects to deliver its growth strategies. Further, an increase in the global supply of solar cells and panels, as well as intense competition may hurt its product prices.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Orange Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and  a target price that reflects a rise of low double-digit (in % terms) has been arrived. A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the continued strong demand for its solar and storage solutions in both its residential and commercial markets, as well as momentum in bookings, and a strong balance sheet with the retirement of its outstanding 2021 convertible notes.

Further, it is making sustained strides on its goal to lower its cost of capital to 5.5% and continues to invest in its digital and product initiatives to lower its customer acquisition costs.

Considering the aforementioned factors along with its accelerating customers base, strong execution, robust pipeline, and sustained strive towards expanding its addressable market, and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $21.83 per share, down by 1.89% on 3^rd September 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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