Sunrun Earnings: Focus Shifts From Growth to Cash Generation
We lower our fair value estimate for no-moat Sunrun RUN to $14 per share from $24 following third-quarter results. The lower valuation is a result of lower growth and higher capital costs moving forward, partially offset by a rising battery storage mix. We view shares as slightly undervalued in light of our Very High Uncertainty Rating.
Sunrun’s third-quarter results were highlighted by a shift in strategic focus from growth to cash generation. The company lowered solar energy capacity installed growth from 10%-15% to 2%-5% amid the ongoing strategic shift. Sunrun is also increasingly prioritizing solar plus battery storage customers, while deemphasizing solar only customers. The company expects to achieve a battery storage attachment rate in excess of 40%, well above national averages.
We lower our forecast for market share modestly given the company’s strategic shift. In addition, we assume a higher subscriber value, driven by higher storage attachment rates, largely offset by higher discount rates. Sunrun’s business model remains highly sensitive to ongoing changes in long-term interest rates.
The company reiterated annual cash generation in the range of $200 million-$500 million, with a bias to the low-end of the range. If achieved, we think this would be a positive for shares given Sunrun has historically not generated positive cash flow.
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