RBC rates Sunrun outperform, sees 44% upside for the stock

Published Wed, Apr 7 202111:40 AM EDTUpdated Wed, Apr 7 20214:04 PM EDT

Sunrun's position as the leader in the rapidly growing U.S. residential solar market makes it an attractive stock for investors to own, RBC said in a note to clients. The firm initiated coverage on the company with an outperform rating, pointing to key benefits for Sunrun as the largest player in the space. "We estimate RUN has a ~25% share of the total residential rooftop market and its size, scale and brand provide advantages for acquiring customers and securing better financing," said RBC analyst Elvira Scotto. The U.S. solar industry posted record growth in 2020 despite disruptions caused by the pandemic. Lower costs are a key driver of wider adoption. According to RBC, solar panel costs have dropped by 89% over the past decade, and the firm sees that number continuing to fall as the technology improves. "We believe current pricing coupled with supportive state and federal incentives make rooftop solar a competitive alternative to traditional utilities," the firm said. RBC added that grid failures caused by extreme weather conditions, most recently in Texas, should drive further adoption of solar. Despite 2020's record growth, Scotto said we are in the "early innings" with rooftop solar penetration currently standing at around 4% across the U.S. She forecasts the industry growing to 13% by 2030, creating a large opportunity for Sunrun. The company's acquisition of Vivint Solar last year solidified Sunrun's position as the leader in the highly fragmented rooftop solar industry. RBC noted that Sunrun's size provides numerous advantages for the company, including better access to supply chains and, crucially, low-cost tax equity to finance growth. The firm also said that the long-term nature of Sunrun's power purchase agreements — typically 20 to 25 years — offers visibility into future cash flows. Additionally, given the company's focus on renewable energy, it screens well from an environmental, social, and corporate governance, or ESG, standpoint. Shares of Sunrun hit an all-time intraday high of $100.93 on Jan. 12 after a blistering rally in 2020 that saw shares advance 402%. But the stock has dropped 45% since January's high-water mark, amid a sell-off in clean energy and growth-oriented areas of the market more broadly. Along with its initiation RBC also set an $81 price target for the stock, which is 44% above where shares closed on Tuesday. Climate change is a central pillar of President Joe Biden's agenda, and his recently unveiled $2 trillion infrastructure plan includes provisions for renewable energy. A further extension of the investment tax credit, which was most recently extended in December, is one such provision. Shares of Sunrun slid 3.5% on Wednesday, and are down 22% for 2021. - CNBC's Michael Bloom contributed reporting.

Sunrun solar.

Source: Sunrun

Sunrun's position as the leader in the rapidly growing U.S. residential solar market makes it an attractive stock for investors to own, RBC said in a note to clients.

The firm initiated coverage on the company with an outperform rating, pointing to key benefits for Sunrun as the largest player in the space.

"We estimate RUN has a ~25% share of the total residential rooftop market and its size, scale and brand provide advantages for acquiring customers and securing better financing," said RBC analyst Elvira Scotto.