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.

FY20 Results Performance (For the Year Ended 31 December 2020)

Total revenue during the period increased by 7.41% YoY to $922.19 million mainly led by a 25% YoY increase in revenue from customer agreements and incentive revenue to $484.2 million. However, the year witnessed a 7% YoY decline in revenue from solar energy systems and product sales to $438 million. Total operating costs for the year increased 29% YoY to $1387.3 million. A sharper rise in operating costs drove the company to report a net loss for the year to $173.4 million against the profit of $26.3 million reported in the previous year.

Customer additions for the full year remained healthy at 84,559, which also includes subscriber additions of 70,774. As on 31 December 2020, the company had 550,078 customers including 478,910 subscribers. Solar energy capacity installed during the year stood at 603 Megawatts while that for subscribers was 511 megawatts.

Consolidated Financial Snapshot (Source: Company Reports)

Q1FY21 Results Performance (For the Period Ended March 31, 2021)

RUN has logged a strong revenue growth of 59% YoY to $334.8 million. The period recorded a 76% increase in revenue from customer agreements and incentive revenue while an increase of 44% in revenue of solar energy systems and product sales on a QoQ basis. Total operating costs during the quarter increased by 44% to $160.2 million on a QoQ basis. Net loss for the quarter stood at $204.3 million against $109.5 million in the prior quarter. The customer additions remained healthy as it added 23,556 customers, including 20,087 subscriber additions that took its customer base to 573,634 as of March 31, 2021. The total value generated during the period was $164.7 million.  

Recent Update

The company, on 19 May 2021, declared that it has formed a partnership with Ford Motor Company to assist in the installation of the 80-amp Ford Charge Station Pro and home integration system for the all-electric F-150 Lightning.

Outlook

Over the years, the company has been able to build a base of customers with recurring revenues. Q1FY21 witnessed revenue growth across segments which means revenue from solar energy systems and product sales also picking up rapidly which augurs well for the company.  

The management has raised its growth guidance in solar energy capacity installed to 25% to 30% from its earlier prediction of 20%-25% growth for 2021. Additionally, it now expects to achieve a total value generated of over $750 million in 2021 as against its earlier guidance of $700 million. However, it reiterates garnering cost synergies of $120 million run-rate by the end of 2021.

Key Risks

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

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

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

While trading broadly in a downtrend, the stock has given a stronger close at $43.51 with a 2.84% gain over the previous week’s close. The technical indicator RSI with a reading around 42 suggests neutral momentum for the stock.

Going forward, the stock may have resistance around the 50% retracement level of $54.15 whereas support could be around the lower Bollinger band of $33.33.

Stock Recommendation

The stock rose by ~132.7% in 1 year. It has made a 52-week low and high of $16.5 and $100.93, respectively. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering its higher operating costs, negative earnings in Q1FY21 as well as higher debt levels. For the purposes of relative valuation, we have taken peers like Vicor Corp (VICR.OQ), Beam Global (BEEM.OQ), among others.

Considering its upgrade in guidance along with 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$43.51 per share, up by 2.84% on 7^th June 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.