Sunrun has seen impressive customer growth over the past ten years. With electricity prices soaring, consumers are looking at ways to power their homes more cheaply than relying on the grid. Is RUN stock a good investment in this environment?
What is Sunrun?
Sunrun (NASDAQ: RUN) is the leading home solar, battery storage, and energy services company in the United States. It sells solar service offerings and installs solar energy systems for homeowners. Customers can access its products through direct-to-consumer, solar partnerships, and strategic partnerships.
Indeed, Sunrun is Ford’s recommended installer, and it’s also the biggest Tesla Powerwall certified installer.
Sunrun has a market cap above $7bn, and the RUN share price is up 2% year-to-date.
The company was founded by Edward H. Fenster, Robert N. Kreamer and Lynn M. Jurich in January 2007 and is headquartered in San Francisco, California.
RUN Q2 Financial Results
Sunrun reported its Q2 2022 earnings on August 3 for the quarter ending June 30. Highlights include:
Surging demand drives record sales activity week in July
33% Y/Y growth in Solar Energy Capacity Installed in Q2
Customer Additions of 34,403, bringing total Customers to 724,177 (21% Y/Y customer growth)
Guidance reiterated for the full year
Annual Recurring Revenue of $917m
Average Contract Life Remaining of 17.6 years
Net Earning Assets of $4.6bn, including $863m in Total Cash
Networked Solar Energy Capacity now over 5 Gigawatts
In the most recent quarter, Sunrun announced the launch of its new Level 2 electric vehicle (EV) charger to complement its home energy management solutions.
Sunrun’s partnership with Ford to serve as the preferred installer of Ford Intelligent Backup Power has officially launched, and Sunrun is taking orders for the installation of the 80-amp Ford Charge Station Pro and the Home Integration System along with providing options for solar and battery systems.
Mary Powell, Sunrun’s CEO, said:
We are laser focused on growing faster, better and stronger as we streamline how we deliver a world class experience for our customers while continuing to provide new product and technology offerings our customers can use to enrich and empower their lives with their own clean, abundant energy.
The proposed legislation currently being evaluated by Congress would turbocharge the transition we are facilitating for customers to a more secure, comfortable, and affordable way to power their lives.
Meanwhile, Danny Abajian, Sunrun’s CFO, commented:
The Sunrun team continues to execute well, delivering significant growth in installations that exceeded our guidance,
The adjustments we made to our offerings in response to higher input and capital costs earlier this year have been received well, and these changes are partially reflected in our higher Net Subscriber Value during Q2, and our outlook is for even higher Net Subscriber Value in Q3.
Sunrun is not due to report its next quarterly earnings until November. This will be covering fiscal Q3 ending September 2022.
For the next quarter, FactSet analyst consensus estimates peg EPS at -$0.08 and sales at $557.37m.
How Does Sunrun Make Money?
Sunrun rents its solar panels to customers for a monthly fee. Therefore, it makes recurring revenue via subscribers on 20-to-25-year contracts. This gives it a clear advantage in obtaining a leading position in the alternative energy sector.
The company also sells solar energy systems and products to retailers. This part of the business has grown significantly this year.
RUN Stock Financials
Sunrun is not a profitable stock. Its financial metrics show a price-to-book (P/B) value of 1.2, compared to the industry average of 0.5. Its price-to-sales ratio (P/S) is 3.9, above the industry average of 1.3. And its Enterprise value-to-sales (EV/sales) is 8.2, which suggests the company may be overvalued compared to the industry average of 1.1.
Over the past year, RUN stock has traded between $16.80 and $60.60. Today it trades at around $36.18.
RUN Growth Potential
The growth opportunity for the solar industry is massive. Today, only 4% of America’s 77 million addressable homes have solar. But escalating retail electricity prices make a case for solar more appealing.
Meanwhile, ongoing electrification is driving up electricity usage and further boosting the case for solar.
According to Sunrun, households with EVs consume approximately double the amount of electricity, increasing Sunrun’s market opportunity and value proposition.
Sunrun delivers energy, a more affordable electric service, and is building one of the largest networks of storage capacity in the US.
Sunrun is growing its brand efficiently, strengthening its resiliency and potential to last. As it scales, it improves operational efficiency and capital raising capabilities.
The company hopes to continue to expand its leadership position.
Sunrun is also expanding its global footprint. For instance, it recently expanded its presence in Puerto Rico. Sunrun entered Puerto Rico in 2018 and quickly became one of the island’s largest providers of residential solar energy and battery systems.
Sunrun has now installed over 42,000 electric batteries. The company expects its battery installations to proliferate in the quarters ahead.
RUN Stock Risks
The company imports its solar modules, which have been subject to disruption. This looks set to cause a challenge later in 2022 and is something shareholders should keep in mind.
Sunrun’s borrowing costs are indexed to long-term interest rates and have benefited from downward pressure recently as expectations for economic growth have softened.
Sunrun works with many suppliers, including several in Asia. This means it has to keep on top of governance and work closely with customs and border control to ensure products are efficiently released from ports.
Sunrun's labor costs are high, so wage pressure inflation could affect its margins.
Advertising, marketing and sales costs are high as Sunrun must constantly make consumers aware of its products.
Overall the company has high input costs, which appear to be growing.
Should You Invest in Sunrun?
There’s no doubt the appeal of solar power is growing as the demand for alternative energy intensifies, and prices skyrocket. And government climate legislation is on the side of alternative energy providers like Sunrun.
However, many households can’t afford the installation costs without subsidies. Nevertheless, this is something Sunrun does capitalize on and is a reason the team at Sunrun is highly enthusiastic about its future.
Mary Powell, the CEO, said:
Sunrun is positioned incredibly well for periods of high inflation or even a recession because fundamentally, we offer customers security, price stability and control over a basic human necessity.
Sunrun’s partnership with Ford provides high-profile synergies giving reassurance to consumers.
FactSet analyst consensus has an Overweight rating on RUN stock, with a target share price of $48.30.
On August 11, analyst Ameet I. Thakkar of BMO Capital Markets reiterated his buy rating on the stock with a target share price of $40.
Customers are increasingly seeking clean, affordable solar energy to reduce their dependence on the grid and do their bit in the fight against climate change.
Declining energy storage costs, home solar plus storage and electric vehicles enhance consumer choice for powering homes and cars.
Whether you invest in Sunrun depends on your long-term outlook for solar power demand and appetite for risk. Sunrun is a clear leader in the space, and RUN stock could benefit. Still, the company doesn’t turn a profit or offer a shareholder dividend, and its financial metrics suggest it may be overvalued.
