Sunrun slips as Wolfe downgrades on high interest rate exposure
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Sunrun (NASDAQ:RUN) -1.2% in Thursday's trading after Wolfe Research downgraded shares to Peer Perform from Outperform, citing headwinds from a rising interest rate environment and preferring distributed solar suppliers such as Enphase Energy (ENPH) that are less exposed to financing pressure dynamics.
The effect on financing costs and valuations is "tough to ignore" even with strong demand coming from the Inflation Reduction Act and rising utility rates, Wolfe analyst Steven Fleishman said.
At the core of Sunrun's (RUN) business model is the ability to have access to debt/ABS financing at reasonable spreads to finance future growth efficiently; Sunrun has "pointed to 85%-95% advance rates on contracted subscriber values, but that is likely moving lower as rates/spreads continue moving higher," Fleishman wrote. "While this can be somewhat offset by rising subscriber values from higher pricing, we still worry it could lead to a scenario where there is a corporate capital need if rates/spreads become too disorderly."
Fleishman said a recent solar securitization was priced at a blended yield of 6.9%, "suggesting that the discount rate used for subscriber values should be ~200 bps higher; we estimate every 100 bps is close to a $2.9K hit to RUN's customer margin metric."
Sunrun's (RUN) revenue growth is healthy "but long-term debt is entirely outsized and poses a material burden on growth," Leo Imasuen writes in an analysis published on Seeking Alpha.