Morgan Stanley says Sunrun is 'most compelling clean energy stock,' sees shares doubling

Published Wed, Jun 16 20213:57 PM EDTUpdated Wed, Jun 16 20213:59 PM EDT

Shares of Sunrun jumped more than 10% on Wednesday after Morgan Stanley reiterated its overweight rating on the company, calling it "the most compelling clean energy stock" across the firm's coverage. Analyst Stephen Byrd also raised his target on shares of Sunrun from $86 to $91, suggesting about 110% upside from Tuesday's closing price. His bullish call is based on several factors, including Sunrun's growth opportunity, as well as its low financing costs. Consumer demand for reliability — especially as Texas and California's grids come under pressure — should also drive adoption. "Sunrun is a beneficiary of several megatrends: rising utility costs and falling clean energy and storage costs, grid reliability impacts from climate change and consumer demand for clean energy," Byrd wrote. Shares of Sunrun have dropped more than 50% since rising to an all-time intraday high of $100.93 on Jan. 12, and Morgan Stanley believes the company's current valuation doesn't accurately reflect the growth opportunity. Specifically, Byrd said the stock is pricing in roughly six years of operations and no customer growth thereafter "essentially meaning that the stock price suggests RUN will go out of business in 6 years," he said. The firm added that the company, which is the largest residential solar installer in the U.S., generates stronger cash flows than consumers appreciate, and pointed to the large total addressable market. Currently around just 3% of houses across the U.S. sport solar panels. Broader adoption of electric vehicles is another upside driver for Sunrun, with Morgan Stanley estimating that this could "create a much value for RUN as RUN's entire current business." In May the company announced a partnership with Ford, whereby the company's F-150 Lightning pickup truck will offer an at-home EV charger and an inverter. The truck could then power critical products and potentially an entire home should there be a grid outage. The company will also offer solar installations for customers. "This EV opportunity could be quite meaningful compared to the overall current size of Sunrun's new customer value creation," said Morgan Stanley. Shares of Sunrun have been hit recently in part because of rising rates, which has weighed on growth-oriented stocks more broadly. Morgan Stanley said that while the company is highly levered to interest rates, the management team has levers to pull, including possibly refinancing debt or altering the capital stack's structure. Shares of Sunrun are down 31% this year, but have gained 137% over the last 12 months. - CNBC's Michael Bloom contributed reporting.