On Monday, GLJ Research modified its stance on Sunrun (NASDAQ:RUN) shares, elevating the company's stock rating from Sell to Hold. The firm's analyst pointed out that Sunrun is scheduled to report its third-quarter earnings for the year 2024 on the upcoming Thursday. The decision to adjust the rating comes as the analyst suggests that betting against the stock prior to the earnings report could pose significant near-term risk.
The analyst maintained a critical perspective on Sunrun's long-term business model, describing it as a "cash-incinerating science project." Despite the company's market valuation of $3.2 billion, it has consistently reported negative free cash flow for each quarter since its inception. The analyst emphasized that Sunrun's growth seems to correlate with increased cash burn, a trend that has persisted across 48 quarters.
Sunrun's reliance on government subsidies was also highlighted as a key factor in the firm's valuation. The analyst's unchanged view on the company's business model reflects skepticism about its sustainability without such financial support.
The research firm's note comes as a precaution to investors who might consider shorting the stock as the company prepares to unveil its financial performance next week. The analyst's comments suggest caution, advising that it may be prudent to refrain from taking a short position in the immediate timeframe.
As the market anticipates Sunrun's forthcoming earnings report, GLJ Research's updated rating indicates a more neutral position on the stock's short-term movements, while still expressing reservations about the company's long-term financial health.
In other recent news, Sunrun Inc ., a leading residential solar company, has made significant strides in the solar industry. The company's Q2 2024 earnings show a record-setting installation of over 116,000 solar and storage systems, contributing to a total value of $310 million.
Sunrun also announced a national partnership with homebuilder Toll Brothers (NYSE:TOL), which is expected to enhance the company's installation potential by a low-single digit percentage in 2025, according to Goldman Sachs.
In addition, Sunrun has ended its sales partnership with Costco (NASDAQ:COST), redirecting its efforts towards other retail and sales channels. This move is not anticipated to have a substantial financial impact, as confirmed by Truist Securities, which maintained a Hold rating on the company. Sunrun also disclosed its third lease/power purchase agreement (PPA) securitization of the year, a $365 million asset-backed securities deal, which did not affect its Hold rating from Truist Securities.
Furthermore, Sunrun, in collaboration with Vistra Corp, launched the TXU Energy & Sunrun Battery Rewards program in Texas, aimed at improving grid reliability. The program is expected to create a virtual power plant with energy from residential solar-plus-battery systems. Lastly, Jefferies initiated coverage of Sunrun with a Buy rating, citing the company's promising cash generation forecast and potential for further monetization opportunities.
InvestingPro Insights
Recent InvestingPro data aligns with GLJ Research's cautious stance on Sunrun (NASDAQ:RUN). The company's market cap stands at $3.42 billion, closely matching the analyst's cited valuation. Sunrun's financial metrics reveal challenges, with a negative P/E ratio of -3.93 over the last twelve months as of Q2 2024, indicating ongoing profitability issues.
The company's revenue for the same period was $2.06 billion, but it experienced a concerning revenue decline of 14.84% year-over-year. This aligns with the analyst's skepticism about Sunrun's business model. The operating income margin of -33.86% further underscores the company's struggle to generate profits from its operations.
InvestingPro Tips highlight additional concerns. One tip notes that Sunrun "operates with a significant debt burden," which could exacerbate its financial challenges. Another tip indicates that the company is "quickly burning through cash," corroborating the analyst's description of Sunrun as a "cash-incinerating science project."
Despite these challenges, an InvestingPro Tip suggests that "net income is expected to grow this year," which might explain the analyst's caution against shorting the stock before earnings. Investors seeking a more comprehensive analysis can access 12 additional tips on InvestingPro, offering a deeper understanding of Sunrun's financial position and market performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.