Sunrun Inc.

RUN Details

Sunrun Inc. (NASDAQ: RUN) is a home solar, battery storage, and energy services company. It was founded in 2007 with the objective of making local clean energy accessible to the people.  

Key Positives:

Increase in Current Ratio (1.53x in FY21 vs 1.26x in FY20), Increase in Quick Ratio (1.03x in FY21 vs 0.95x in FY20)

Key Negatives: 

Increase in D/E Ratio (1.04x in FY21 vs 0.79x in FY20), Negative Net Margin (-60.9% in FY21)

Key Risks:

Regulatory Risk, Macro Risk, Price Risk, Demand Risk, Supply Chain Risk

Result Performance for the period Q1FY22 ending 31 March 2022

• The company reported 27% growth in Solar Energy Capacity during the quarter, exceeding guidance levels. It installed 213 Megawatts of solar energy during the period, with 154 Megawatts being installed for Subscribers.
• Annual Recurring Revenue stood at $883 million as of 31 March 2022, with average contract life remaining of 17.4 years.
• The Group added 29,463 customers in Q1FY22, including 21,197 Subscriber additions. This reflected a growth of 20% compared to the prior corresponding quarter.
• Gross earnings assets stood at $10.2 billion as of 31 March 2022, and net earnings assets at $4.5 billion.

Source: Company Reports, Analysis by Kalkine Group

Key Updates

• On 22 April 2022, the company has released its 2021 Impact Report with brief on ESG impacts and initiatives.

Outlook

After a decent Q1FY22 performance, the management has opined that it expects Solar Energy Capacity Installed growth to be 25% or more in FY22. This reflects an increase from the prior guidance of 20%. It also anticipates total value generated to grow at a faster pace than Solar Energy Capacity Installed for the full-year 2022, with Net Subscriber Values of above $10,000 in Q3FY22. Solar Energy Capacity Installed in Q2 is expected to be in a range between 235 and 245 megawatts.

Key Risks

The company is prone to the impact of an increase in interest rate, which can impact the bottom line of the company due to higher outgo in finance charges. It is also exposed to the risk of rules and regulations of Government, coupled with the current volatility in macro conditions.

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

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation:

The stock has delivered a 6-month and 1-year return of ~-58.25% and ~-43.91%, respectively. It is currently trading below the average of 52-week high price of $60.60 and the 52-week low price of $18.61.

The stock has been valued using an EV/Sales multiple based on relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/Sales multiple (NTM basis), considering the upgrade in guidance and robust demand outlook.

Considering the impressive financial performance and decent outlook, we give a “Buy” recommendation on the stock at the closing market price of $ 24.34 per share, as of 04 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Sunrun Inc. (RUN) is a part of Kalkine’s Global Green Energy Portfolio

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.