Sunrun, the largest developer of rooftop solar arrays in the US, posted strong fourth-quarter results that beat Wall Street estimates. The company’s revenue was $609 million, with an adjusted earnings per share of 29 cents. This exceeded expectations for a penny of earnings on $582 million in revenue. Sunrun’s net subscriber value also rose to $16,569 from $13,259 in the prior quarter.
According to Sunrun’s CEO Mary Powell, the Inflation Reduction Act is likely to benefit the company considerably in 2023. Powell said the company has seen strong interest from consumers at the start of the year, making it a year of gaining market share for Sunrun. While the residential solar market is expected to add about 7% more capacity in 2023, Sunrun is projecting 10% to 15% growth.
Sunrun has around 800,000 customers across the country, and most of them lease the panels. The customers pay a monthly charge to Sunrun for the power they produce. The company has $1 billion worth of recurring annual revenues from those contracts, according to the company.
However, the company’s profitability may be affected by rising interest rates, which make it more expensive to finance solar projects. Sunrun shares fell 0.8% in after-hours trading. As a result of the rise in market interest rates, Sunrun is changing how it discounts its cash flows from customers. Instead of using a 5% rate, it will now use a 6% rate. The company expects net subscriber value to fall to $10,000 as a result of this change, and due to seasonality, the company expects a less profitable first quarter.
Criticism and Response
In the past, some investors have criticized Sunrun for using too low of a discount rate. Hedge fund investor Jim Chanos said on CNBC on Wednesday that “no one in their right mind thinks their weighted average cost of capital is 5%.” However, Powell said that Sunrun’s overall “trajectory is mathematically positive no matter what discount rate you apply.” Powell also stated that Sunrun’s solar leases could become more attractive as interest rates rise, as they are a better deal than direct loans, which are more rate-sensitive.
Sunrun’s Q4 results exceeded Wall Street estimates, and the company is projecting strong growth in 2023. While rising interest rates may impact the company’s profitability, CEO Mary Powell remains optimistic about the company’s trajectory. The Inflation Reduction Act is expected to benefit the company in the coming year, making it a year of gaining market share for Sunrun. Overall, Sunrun’s position as the largest developer of rooftop solar arrays in the US and its strong recurring annual revenues make it a company to watch in the renewable energy sector.