RBC: Outpace Solar Peer Growth With Sunrun

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  • Sunrun Inc RUN has seen a slightly more than 21 percent increase in its share price over the past five trading days.
  • Mahesh Sanganeria of RBC Capital Markets has initiated coverage of Sunrun with an Outperform rating and price target of $16.
  • Sanganeria expects the company to witness above peer growth in the high growth U.S. residential solar market, driven by Sunrun’s open platform strategy.

According to the RBC report, the company’s technology-enabled customer targeting “allows high-value customers and, therefore, attractive unit economics.” Sunrun is expected to benefit from the robust growth in the residential solar market in the US.

Despite the more than 50 percent CAGR for residential solar installations, rooftop solar systems have only penetrated less than 1 percent of U.S. homes. Sanganeria expects the residential solar market to grow at a CAGR of more than 30 percent through 2020, driven by continued support via net metering and other incentives, as well as tech-enabled cost reduction.

“Since inception, Sunrun has built an open platform that allows a broad spectrum of partnership with channel and strategic partners leading to a much broader customer reach and, hence, above market growth,” Sanganeria stated.

This open platform has driven rapid MW sales growth of over 90 percent year-on-year for Sunrun and more than 62 percent year-on-year installation growth in 2014. This above peer growth is expected to continue going forward.

In addition, due to its proprietary software, the company is able to offer market leading Power Purchase Agreement rates for its high value customers, while offering competitive prices for its mid-range customers.

Its customer targeting strategy allows Sunrun to generate attractive unit metrics, while sustaining a customer base that has larger system size, higher contracted payments, better credit score and retained value than its competitors.

“Driven by rising scale and ongoing investments in direct channel, we expect creation cost to decline significantly while project value to decline at much slower pace leading to significant growth in NPV,” the report added, while mentioning that the stock valuation was very attractive at present.

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Posted In: Analyst ColorInitiationAnalyst RatingsRBC Capital Markets
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