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Investing.com - SunRun Inc (NASDAQ:RUN) shares fell 16% following critical comments from GLJ Research analyst Gordon Johnson regarding the company’s business model and financial structure.
Johnson highlighted concerns about SunRun’s power purchase agreements (PPAs), which form the core of the company’s business model. These agreements allow SunRun to install solar systems on homeowners’ roofs, retain ownership, claim the 30% investment tax credit, and sell power to homeowners over 20-30 year terms. InvestingPro subscribers can access detailed financial analysis of solar companies like SunRun to better evaluate the sustainability of such business models.
The analyst noted that SunRun has historically sold these PPA assets into a warehouse operated by Apollo, but appears to be deviating from this established framework. Johnson suggested this change could indicate either Apollo has closed its warehouse to SunRun or the terms for selling assets into Apollo’s warehouse have significantly deteriorated.
Johnson described either scenario as potentially "catastrophic" for SunRun, drawing parallels to SunPower and Sunnova, which both faced severe financial difficulties within months after losing access to their warehouses. According to Johnson’s analysis, these companies’ solar systems "did not make the money they claimed, but, rather burned money." Interestingly, InvestingPro data shows Sunnova has been profitable over the last twelve months, despite its stock declining nearly 59% over the past year.
The analyst warned that if SunRun can no longer offload these assets into warehouses, it could quickly deplete its cash reserves, potentially triggering a "liquidity event" similar to what occurred with SunPower and Sunnova. While Sunnova faces challenges, InvestingPro analysis indicates the company is currently undervalued with a Financial Health rating of "GOOD" despite its current ratio of 0.78. Investors seeking deeper insights into the solar sector can access additional ProTips and comprehensive financial metrics with an InvestingPro subscription.
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