Sunrun Inc.

RUN Details

Sunrun Inc. (NASDAQ: RUN) is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy systems in the United States. It has over 550,000 customers and it has sold its solar service in 22 states, DC & Puerto Rico. The company has a market capitalization of ~US$9.56 billion as on 15^th April 2021.

Result Performance – For the Year Ended 31 December 2020

For the year ended 31 December 2020, the revenue increased by 7% to $922.2 million from $858.6 million in the corresponding period last year. The rise in revenue was mainly led by rise in customer agreements which grew by 25% to $432.5 million from $345.5 million in FY19. However, incentives grew by 22% to $51.6 million from $42.3 million in FY19. However, the solar energy systems fell by 5% in FY20 to $269.9 million from $283.4 million. The company’s net loss grew to $626.9 million from $391.0 million in FY19.

Key Data (Source: Company Reports)

Recent Updates

Priced leases and power purchase agreements: As per the release on 10 March 2021, the company has priced a securitization of leases and power purchase agreements. The securitization consists of a single-tranche of A- rated notes with a $201 million initial balance, representing 80.0% advance rate. The note is priced at a yield of 2.46%, reflecting a spread to the benchmark swap rate of 135 bps.

Fourth Quarter and FY20 Financial Results: On 25 February 2021, the company announced its Q4FY20 and full year results. As per the release, it has added ~23,500 customers in Q4FY20. Further, its announced net subscriber value of $9,051 resulting in total value generated of $170 million during Q4FY20. The company has closed the acquisition of Vivint Solar that resulted an increase in cost synergies from the transaction from $90 million to $120 million.

Expands home solar and battery offering in Texas: As per the release dated 24 February 2021, the company’s Brightbox rechargeable solar battery instrument is now accessible to residents of San Antonio. This instrument stores energy produced from rooftop solar panels and also provides backup electricity in case of power outage.

Risks

As per the management, the existing COVID-19 related nervousness could impact business, operations, markets, and communities, broadly inferred from weakened economic conditions. Further, any unexpected unfavourable surprises in the industry, as the industry is still evolving to capture the market opportunity, could severally impact the company. Moreover, the industry would take several years to fully mature to the size or at the rate expected by the company. Importantly, any spike in cost from previous levels could harm the financial results dramatically. Further, due to the nature of the business, the company faces immense competition from traditional energy companies.

Outlook:

On 8 October 2020, the company announced that it has completed the acquisition of Vivint Solar. With this transaction, the company establishes its position as the leader in home solar and energy services across the United States and a top owner of solar assets globally with over three gigawatts of solar energy and more than 500,000 customers.

Now, the company has cemented its position in the industry to provide affordable, reliable and clean electricity at new scale. As per the management, residential solar market is massive & underpenetrated.

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

Stock Recommendation:

The stock has witnessed a fall of ~46.9% in 3 months and over the last 6 months, it has fallen by ~26.5%. However, the stock reported a growth of ~28.8% in 9 months and ~311.9% in 1 year. The stock has a 52-week low and high of US$10.835 and US$100.93, respectively and is currently trading below the average of 52-week high-low range.

Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight discount to its peer EV/Sales (NTM Trading multiple) considering the company has negative EBITDA and net profit margins versus peers, while also considering its elevated debt levels.

The first resistance has been marked at US$66.38 and first support has been marked at US$47.04.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of US$47.20 per share, down ~4.99% on 15^th April 2021.

RUN Daily Technical Chart (Source: Refinitiv (Thomson Reuters)) 

Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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