Will This Solar Stock Bounce Back?

Federal money is going into clean energy, and both government and businesses are demanding lower carbon emissions.

The the value of the global solar power market was estimated at $253.69 billion in 2023, and it is expected to increase to $273 billion in 2024, then further rise at a CAGR of 6% to reach $436.36 billion by 2032.

As the solar industry’s future appears bright, is Sunrun Inc. (NASDAQ:RUN) ready to capitalize on it and bounce back?

Sunrun’s Growth Initiatives

Sunrun offers consumers subscriptions to clean energy in the United States and has more than 800,000 customers all over the country, including Puerto Rico. Its initiative there, Virtual Power Plant, has set up 2,000 batteries aimed at keeping electricity stable on the island when there is not enough power. 

It has also partnered with Lowe’s Companies, Inc. (LOW) to leverage the firm’s broad retail presence to provide solar and storage solutions nationwide The alliance is a win-win, taking advantage of Sunrun’s solar expertise and Lowe’s focus on homeowners, resulting in a strong opportunity to reach more customers.

Sunrun’s partnership with the Pacific Gas and Electric Company in California also appears to be very successful following the installation of 8,500 residential solar and storage units. The result is Sunrun has delivered dependable green power, responding to electricity grid needs while helping to reduce increasing energy expenses.

These spread-out power stations offer a new channel for energy to be sourced and has the potential to be rolled out across the country so have the enterprise partnerships translated into financial success?

Sunrun’s Recent Financial Performance

Although Sunrun has been actively seeking ways to grow, the financial results reveal that these efforts have not been very successful. For the fiscal 2023 fourth quarter, which finished on December 31, 2023, revenues fell by 15.2% compared to the same period last year and reached $516.59 million.

Losses from operations widened by 4.4% from the year-ago level to $197.53 million and the company experienced a net loss and net loss per share attributable to common stockholders of $350.12 million and $1.60 per share respectively. That was a disappointment given that in the prior period, a profit was reported of $63.02 million or $0.29 per share.

Additionally, on December 31, 2023, cash was $678.82 million, which decreased from $740.51 million on December 31 of the previous year. At the same time, total current assets were at $1.88 billion, which is $2.10 billion less than the prior year.

Furthering the woes, the company’s liabilities increased to $13.54 billion, in contrast with $11.09 billion at the end of December 31, 2022.

Although Sunrun is growing and forging strategic alliances, its latest financial results have caused investors to worry about whether it can really earn steady profits soon. It’s starting to appear that cost-cutting initiatives may be necessary to turn around the financials.

Is Sunrun Poised for Growth?

In the first quarter of fiscal 2024, it is expected that Storage Capacity Installed will be between 160 and 170 megawatt hours, representing growth of 125% to 139% compared with last year.

Over the entire year, Sunrun forecasts that Storage Capacity Installed are forecast to vary from 800-megawatt hours to one gigawatt hour, indicating a significant increase in yearly growth ranging from 40% to 75%.

However, the capacity of solar energy installed is predicted to be between 165 and 175 megawatts in the first quarter, which represents a decline of around 25% from the fourth quarter. This decrease is mostly attributable to slower sales activities during this season, as well as weather challenges that make installations harder.

With that said, the 5-year revenue forecast is for growth of 11.2% annually, albeit that is a material slowdown from the 24.4% growth previously enjoyed.

Will Sunrun Stock Recover?

Analysts remain upbeat about Sunrun’s recovery prospects and have a consensus price target of $19.56 per share.

As a home battery expert that helps utility companies plan how they respond to demand, Sunrun has established deep market expertise and, as of December 31, 2023, the company had the biggest number of solar systems in homes across the United States, with its Networked Solar Energy Capacity hitting a high of 6,689 megawatts.

In spite of Sunrun’s successes, the latest forecasts appear dim. For the first quarter of fiscal year 2024, which ended in March, management reported a loss of $0.57 per share and also a drop in revenue by 19.9% to $472.57 million when compared with last year’s numbers.

Forecasts for the second quarter that wraps up in June 2024 suggest a loss of $0.30 per share, and analysts predict revenues will fall by 5.6% to $557.35 million when compared with the same time last year.

Worsening financial results have correlated with share price and a stock decline of about 40% since the start of the year. 

It can’t be overstated that Sunrun is operating with a high debt burden, regularly posts weak gross margins and has poor cash flow yield. As such, buoyant analysts views should be tempered in light of the balance sheet fragility and risks to shareholders.

To make matters worse, it does seem like the company is burning through cash quickly and analysts, though bullish overall, have revised earnings estimates lower for the upcoming quarter.

In light of the high revenue valuation multiple and lack of profitability, caution is most certainly warranted.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.