- Sunrun has experienced a significant deterioration in many KPIs, including negative growth in customer additions and a 1% growth in solar energy capacity installed from last quarter.
- Due to a sharp slowdown in solar demand, the company is facing a persistent growth decline in its total revenue going into FY2024, coupled with negative EBIT and FCF.
- With $9.5 billion in net debt on its balance sheet and an interest expense accounting for 30% of total revenue in 3Q FY2023, the company is exposed to solvency risk.
- Despite a 60% YTD selloff, the stock’s valuation remains expensive, trading at a premium multiple of 5.72x EV/Sales TTM, compared to its peers.
What Happened
Sunrun (NASDAQ:RUN) has been underperforming in recent months, with a 60% YTD selloff compared to the iShares Global Clean Energy ETF (ICLN), which saw a 34% decline. Back in April, anticipating a potential growth slowdown due to NEM 3.0, I issued a sell rating on RUN. Since that time, the stock has declined by 55%. My primary concern revolves around the company’s high leverage, making it exceptionally susceptible to a sharp decline in demand.
During the latest earnings release, RUN announced a reduction in its solar capacity growth for FY2023, scaling it back to low single digits from the previously projected double digits due to overall sluggish demand. While I maintain optimism regarding the company’s long-term growth prospects, I expect persistent headwinds from the NEM 3.0 transition and weakened global demand for solar energy into 1H FY2024.
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