RUN Will Benefit From Sunruns Position As a Leading Solar Company
2020 has been a great year for investors in Sunrun (NASDAQ:RUN) stock. Year-to-date, RUN stock is up more than 300%. In fact, that metric tells only half the story for the year. Since the 52-week low hit in early spring, the shares are up about 600%. Put another way, the proverbial $1,000 invested in RUN stock would now be worth around $7,000.
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San Francisco, California-based Sunrun develops and installs residential solar energy systems in the U.S. It also sells solar energy systems and products, such as panels and racking. The upcoming presidential election has turned the spotlight to alternative energy sources and shares of companies in the sector. We believe regardless of the result of the election, solar energy will continue to grow.
Between 2020-2025, the solar energy market stateside is expected to reach a compound annual growth rate (CAGR) of 17.32%.InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Recent research by David Tilley of University of Zurich highlights:
“The field of solar energy conversion is motivated by the desire to free ourselves from a reliance on fossil fuels for our energy needs. Solar energy is a renewable and carbon-free energy source, and it is by far the most abundant, comprising greater than 99% of the total amount of all renewable energies available on Earth.”
Investors wonder if they are late to the party in RUN stock. The company is expected to report Q3 earnings on Nov. 5. If you are not currently a shareholder, you may want to wait until you have a chance to study the quarterly metrics. A potential decline toward the $50 level would improve the risk/return profile for long-term investors.
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Since the release of Q2 results, RUN stock is up more than 20%. In fact, earlier in October it hit an all-time high of $82.42.
What to Expect From Q3 Results
In early August, Sunrun, a leading residential installer of solar panels, released Q2 earnings. Revenue was $181.3 million, down $23.3 million, or 11% YOY. The company reports revenue in two segments:
Customer agreements and incentives (revenue was $106.1 million, an increase of $13.7 million, or 15% YOY);
Solar energy systems and product sales (revenue was $75.2 million, a decrease of $37.0 million, or 33% YOY).
Total operating expenses came at $264.8 million, a decrease of 1% YOY. Net loss attributable to shareholders was $13.6 million, or 11 cents per share in Q2. Overall, the results showed some adverse impact of the pandemic.
On a more positive note, the company had 309,000 customers, an increase of 21% YOY.
The Vivint Acquisition
The group has recently acquired Vivint Solar, giving Sunrun access to a larger customer base across the country. It was an all-stock purchase and the final regulatory approval is expected in the weeks to come.
The combined customer base will be more than 500,000. Merged grid services will mean further synergies for Sunrun. The combined resources will also help Sunrun improve its balance sheet with steady, utility-like level of recurring cash flows. These developments should understandably power RUN stock to reach new highs in future quarters.
“In the quarter, we moved to a digital sales and streamlined operating model, improving our cost structure trajectory,” CEO Lynn Jurich said. “In July we reached an agreement to acquire Vivint Solar to expand our customer reach and improve scale efficiencies. We have increased our customer value proposition with new virtual power plant contracts, increased battery adoption and launched a new venture for further home electrification.”
The Bottom Line on RUN Stock
Solar energy has been one of the hottest sectors of 2020 and the new decade will possibly see further growth. As a result, RUN stock will likely do well in the long-run. The recent acquisition of Vivint should help the company as well.
The company’s current market capitalization stands at $7 billion. With increasing interest in renewable energy, there is certainly further room for growth in the share price.
However, due to the recent run-up in price, its valuation is expensive. The forward P/E and P/S ratios stand at 65.79 and 8.37 respectively. Potential investors would benefit from a likely pullback in Sunrun shares, which may happen in the coming weeks.
Alternatively, investors who are interested in solar technologies and clean energy shares may also benefit from researching and possibly investing in various exchange-traded funds (ETFs), including the Invesco Solar ETF (NYSEARCA:TAN), the First Trust NASDAQ Clean Edge Green Energy Idx Fd (NASDAQ:QCLN), and the VanEck Vectors Low Carbon Energy ETF (NYSEARCA:SMOG).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
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InvestorPlace · 10/30 18:19