Sunrun Earnings: Executing Well Amid a Challenging Industry Environment

We trim our fair value estimate for no-moat Sunrun RUN to $24 per share from $27 following second-quarter results. The slightly lower valuation is a result of assumed higher capital costs moving forward. We view shares as slightly undervalued in light of our Very High Uncertainty Rating.

Sunrun appears to be executing well amid a challenging U.S. rooftop solar demand backdrop. Recent order trends in California and outside California appear to be above peers. In California, Sunrun is seeing new sales down by one third year-on-year in July, which is above our expectation for sales to drop by half. In addition, the company is benefiting from solar plus storage adoption, noting an 80% storage attachment rate with recent orders. Outside of California, Sunrun highlighted 25% year-on-year growth, which appears to be much stronger than peers. We believe the company is likely benefiting from its business mix concentrated on solar leases, which have gained market share in recent months.

While Sunrun appears to be executing well, we continue to expect a choppy demand environment moving forward amid higher interest rates and policy changes. Looking forward, we sense a growing focus from Sunrun on prioritizing value per customer (via solar plus storage) as opposed to absolute customer growth.

Among the more notable takeaways from the results was the company’s expectation for positive cash generation moving forward. The company expects annual cash generation in the range of $200 million-$500 million and expects to provide further details in the quarters to come.