If you believe that the United States is destined to turn to renewable power sources instead of burning its way through fossil fuels, Sunrun (NYSE:RUN) stock deserves some serious consideration.
After a recent merger, Sunrun is undoubtedly the biggest name for consumers to turn for solar panels and alternative energy solutions. The potential market is huge. So is the opportunity for RUN stock.
While Sunrun has come down from some recent highs, the stock is still up nearly 277% so far in 2020. Third-quarter earnings in early November could be a key point for RUN stock sentiment. So could the results of the presidential election.
RUN Stock at a Glance
Sunrun recently completed its acquisition of Vivint Solar, in a $9.2 billion deal that was announced in July. The deal closed in early October, giving Vivint shareholders .55 shares of Sunrun stock for each share of Vivint stock.
Sunrun will operate Vivint as a separate company in the near term before incorporating its operations into Sunrun. Sunrun owns 64% of the former Vivint, with its former shareholders owning the remaining 36% of the shares.
Now that the deal is closed, Sunrun has more than 500,000 global customers and owns more than 3 gigawatts of solar energy capacity.
The Potential Market for Growth
Sunrun says that it is installing a new rooftop solar system nearly every two minutes. The company saw its customer base grow by 37% on a year-over-year basis in 2017; growth in 2018 was 31%, and growth in 2019 was 26%.
As of August, Sunrun had customers in 22 U.S. states as well as Puerto Rico. But that’s really the tip of the iceberg.
Even with its solid growth rate, Sunrun says that its market penetration is only 3%. Factoring in a compound annual growth rate of 15% over the next 10 years, Sunrun believes that it can reach 13% market penetration by 2029.
Sunrun Earnings Preview
The second quarter was not a good one for RUN stock. The company had one of its worst quarters for distributed energy deployment in two years. The slowdown was attributed to cutbacks in household spending from the novel coronavirus.
For the second quarter, Sunrun reported a loss of $13.6 million, which equated to -11 cents per share. Revenue for the quarter also fell by 11% on a year-over-year basis to $181.3 million. The losses were led by product sales revenue and solar energy systems revenue, which fell by 33% on a year-over-year basis.
But improvement is expected this quarter. When Sunrun reports earnings after the closing bell on Nov. 5, analysts are expecting revenue of $209.5 million. The company is also expected to turn a profit, with EPS of 2 cents.
A year ago in the third quarter, Sunrun posted EPS of 23 cents per share, so the Covid-19 headwinds are far from over. It’s also notable that Sunrun has a history of consistently missing earnings expectations.
The Presidential Election
Solar panel stocks have been doing particularly well this fall as the stock market begins hedging its bets on who will be occupying the Oval Office in January.
President Donald Trump has been a champion of fossil fuels, promoting coal and exploration of oil and natural gas. But Democrat Joe Biden leads in the national polls as well as in key battleground states.
Biden hasn’t endorsed the Green New Deal that the progressive wing of the Democratic party champions, but the policies of a Biden White House are seen to be more environmentally-friendly in promoting alternative energy sources. A Biden victory in November would continue to support solar panel stocks such as Sunrun.
The Bottom Line on Sunrun Stock
The company has been on an amazing run so far this year. Its Vivint acquisition gives it a market value of $22 billion. And there is a growing likelihood that the U.S. could have a more environmentally-friendly president in 2021.
Even with the specter of competition from Tesla (NASDAQ:TSLA) in the residential solar panel market, the potential market for Sunrun is huge. Now that it’s absorbing Vivint, the company should be able to scale its operations and increase its profit margins as it accelerates growth.
RUN stock has a ‘B’ rating in my Portfolio Grader, where it carries a buy recommendation.
On the date of publication, Louis Navellier did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article had a long position in TSLA. The InvestorPlace Research Staff member did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
