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Sunrun's Execution Risk, Cost Trajectory Concerns Have Eased, BofA Says In Upgrade

Sunrun's Execution Risk, Cost Trajectory Concerns Have Eased, BofA Says In Upgrade

An "overreaction" to Sunrun Inc (NASDAQ: RUN)'s earnings report in early August presents an opportunity for investors to buy the stock ahead of an era of "more confidence and less risk," according to Bank of America Merrill Lynch. 

The Analyst

Analyst Julien Dumoulin-Smith upgraded Sunrun from Neutral to Buy with a price target lifted from $16 to $17.

The Thesis

Sunrun's second-quarter report was notable for an earnings per share hit, but it was driven by a delay in recognition of around $36 million in investment tax credit value to the third quarter, Dumoulin-Smith said in the upgrade note. (See the analyst's track record here.)

The back half of fiscal 2018 looks more favorable in terms of deployments and cost reductions, and the company has longer-term support from recent legislation — including the recently signed SB100 bill in California, which calls for the state to be fully green-powered by the year 2045, the analyst said. 

The bullish case for Sunrun's stock can also be made on the back expectations for management deploying some of its guided cash generation of $50 million in 2018 and $100 million in 2019 for a safe harbor stockpile or even buybacks, Dumoulin-Smith said.

The company's $1 billion of over-market callable debt could be refinanced, saving Sunrun $5 to $10 million a year in interest costs, the analyst said.

Concerns related to Sunrun's execution risk and cost trajectory have eased, and the stock has minimal downside risk at current levels, in BofA's view.

Price Action

Sunrun shares were set to close 6.53 percent higher at $12.73 at the time of publication Tuesday afternoon. 

Related Links:

Powering Down: Morgan Stanley Cites Valuation Concerns In Sunrun Downgrade

Bank Of America Upgrades Sunrun After Post-Q2 Pullback

Latest Ratings for RUN

Nov 2020Roth CapitalMaintainsBuy
Nov 2020Morgan StanleyReinstatesEqual-Weight
Oct 2020UBSDowngradesNeutralSell

View More Analyst Ratings for RUN
View the Latest Analyst Ratings


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