Can Sunrun Weather the Policy Storm? Analysts Weigh Potential Solar ITC Cuts

Sunrun Inc. RUN shares are trading higher on Thursday after the company reported better-than-expected first-quarter results on Wednesday.

The company reported an EPS of 20 cents per share, which beat the analyst consensus estimate of 25 cents loss and revenue of $504.27 million, which beat the consensus estimate of $484.06 million.

Guggenheim analyst Joseph Osha kept Neutral rating on the stock and writes that while overall customer volume growth is modest in the quarter (additions of 25,428, up only 6%, with expected decelerating comps).

The analyst anticipates the company to continue to prioritize liquidity and profitability over aggressive growth in the near to medium term, awaiting a more favorable environment.

Also Read: Jim Cramer: Sunrun Had ‘Bad Couple Of Quarters,’ ExlService Holdings Is ‘Solid’

Osha projects Sunrun to become an increasingly dominant player as the residential solar industry consolidates.

The analyst writes that the company’s main challenges are policy-related, particularly the solar Investment Tax Credit (ITC), which significantly impacts their cash generation ($50 million impact on cash flow for every 1% change in the effective ITC rate).

The analyst notes that the company has strategies to counteract a lower ITC, and management stated their belief that the company can still generate cash under such circumstances.

However, the analyst adds that accurately predicting the net effect and timing of potential changes to the Inflation Reduction Act on cash generation is exceedingly challenging.

Osha expects this to pose a considerable challenge for RUN investors in the medium term.

KeyBanc analyst Sophie Karp reiterated a Sector Weight rating and said the results beat consensus. They exceeded their solar and storage capacity addition guidance and marked their fourth quarter of positive cash flow.

The company’s second quarter and FY25 guidance indicates strong demand across channels, and they continued to reduce corporate debt, adds the analyst.

Karp writes that while these positives might offer some valuation support, broader uncertainty around government and fiscal policy, coupled with persistently high industry-wide cost of capital, can lead to shares unlikely to regain positive momentum in the near term.

Investors can gain exposure to the stock via the Invesco Solar ETF TAN and the ProShares S&P Kensho Cleantech ETF CTEX.

Price Action: RUN shares are up 11.7% at $8.255 at the last check on Thursday.

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