Technology
A rebound in advance rates to propel FCF inflection / increased share repurchases - the alternative energy specialist who presented this idea at MYST’s Industrials Idea Forum last pitched RUN as a long in 2017 when the shares were trading at ~$4, before they rose to nearly $100. The company has faced several challenging years, but with the stock down ~90% from its peak and fundamentals beginning to turn, he believes now is a good time to revisit RUN as a long. His thesis is not predicated on lower interest rates and he does not assume a recovery in the overall residential solar market, as he believes the industry will remain challenged. TP $35 (150% upside).
Energy
Veritas have identified several headwinds that will weigh heavily on RUN’s share price including declining third-party ownership market share, key input costs of solar and battery systems, subsiding subsidies (both federal and state) and aggressive non-GAAP metrics. Jacob Liu estimates that RUN’s normalised 2021 recurring cash flow is $159m, implying a lofty 46x FCF multiple. Using a sum of the parts approach, he values RUN’s existing assets and development prospects at $20/share (40% downside).
Blinded by the Light: Highlighting Solar Non-GAAP Risks
Energy
Veritas’ analysis reveals common non-GAAP metrics used by US solar leasing companies, such as Gross Earning Assets, Net Earning Assets and Net Present Value, could be overstated by as much as 70%. They challenge key assumptions that underpin these complex calculations, such as renewal rates, default rates and discount rates. Their study focuses on three industry leaders - Sunrun, Sunnova Energy and SunPower and they believe that unless legislation impairs the economics of competing energy sources, all 3 companies remain significantly overvalued despite recent 30-40% corrections.
