Analysts are betting Sunrun to return to high growth
This year has been a disaster for renewable energy stocks, as we have written about multiple times, and recently the collapse in Orsted shares has put questions around the viability of offshore wind power amid high material costs and high interest rates. Despite a negative narrative in financial markets the with a jump by a third in 2023 compared to last year making it the largest absolute increase ever at 440 GW taking the total installed capacity of renewable electricity production to 4,500 GW (equal to the total power output of China). Two thirds of the increase in capacity this year is coming from solar. It looks increasingly like solar will be the dominant renewable energy source in the future.
Sunrun is the leading US home solar panel and battery storage company which has grown from a $859mn revenue business in 2019 to estimated $2.35bn in 2023. The company is still not profitable with an expected negative EBITDA of $263mn in 2023. From high growth rates during the pandemic (75% in 2021) revenue growth has slowed to just 1% in 2023 and the debt has ballooned to around $11.5bn. As a result, the default probability has risen dramatically since 2020 with Bloomberg’s default model score sitting just one notch above default. Sunrun shares are down 44% this year and the company has to quickly prove a path to profitability to avoid a potential restructure.
The residential solar market is tough in the US with financing rates at much higher levels compared to the high growth years of 2020 and 2021. On a positive note, Sunrun is growing faster than its peers and its virtual power plant strategy is beginning to bear fruit compared with good uptake in its battery business. Sunrun expects to generate $200-500mn y/y cash generation over the coming quarters and has said that it needs no recourse financing. The investment thesis relies heavily on the path to positive cash generation and revenue growth rates hitting 15% in 2025.
