2023-06-16 06:11:23 ET
Summary
- Sunnova has one in four of its shares being shorted.
- NOVA is experiencing strong year-on-year revenue growth as solar adoption in the US runs hot.
- However, net losses are material as higher interest expenses disrupt the highly levered business model.
Pull up a 5-year chart of Sunnova ( NOVA ) and you're met with a stock price that's a long way away from its 2021 highs. This was an era filled with unrestrained optimism around the revolutionary potential of green energy on the back of its fast-ramping adoption across the US and the world. Two years and ten consecutive interest rate hikes later and the landscape for green energy stock has been radically redefined. Sunnova has staged a recovery in 2023, up around 11% year-to-date recovering from lows set during the March banking panic. The Fed's June rate hike pause has opened up the prospect of sentiment finally improving and bulls will be looking for investor appetite for previously risk-off equity to increase.
However, I don't think it's time to buy Sunnova even after a bear market of two and half years likely set to invert as solar enters a new phase of adoption. The numbers are coming in hot. The first quarter of 2023 was the best-ever quarter for the growth of solar with 6.1 GW installed across the U.S. This constituted 54% of all new electricity generating capacity added to the grid during the first quarter and was an increase of 47% over the year-ago period. The 2022 Inflation Reduction Act is set to help drive investments in solar power to surpass oil for the first time in 2023. This is as the US solar market is forecast to more than double through to 2028 with total installed capacity growing to reach 377 GW from 142 GW at the end of 2022.
Energy As A Service
Sunnova makes money by selling rooftop solar systems to homeowners and then collecting payments for the system over time. The company describes itself as an energy-as-a-service company with customers driving sustained flows of cash to Sunnova for years. The company recorded fiscal 2023 first-quarter revenue of $161.7 million , up 146% over the year-ago comp and a beat by $2.16 million on consensus estimates. Growth was driven by 30,100 new customers added during the first quarter to bring the total customer count to 309,300. Critically, the rate of customer additions nearly doubled in the first quarter versus its year-ago comp.
However, revenue included $59.9 million of inventory sales which would have reduced year-over-year growth to 55% was it excluded. The company's operating expenses came in at $210.5 million, up from $100 million in the year-ago quarter as general and administrative expenses grew by $31 million. Interest expenses of $85.61 million formed the most pertinent headwind as it grew from $1 million in the year-ago comp, although partially offset by $24.79 million in interest income.
Sunnova's long-term debt as of the end of the first quarter stood at $5.6 billion , up from $3.5 billion in the year-ago quarter to support growth that's been material. The company expects $553 million in cash inflows over the next 12 months, around $1,788 per customer, and against a weighted average contract life remaining of 22.2 years. There was 1.95 GW of solar power generation under management, around a 41% increase over the year-ago quarter with the company guiding for 125,000 to 135,000 customer additions through 2023.
A Recovery In View
Sunnova's short interest stands at around 25%, around 1 in 4 shares outstanding, somewhat understandable against what remains consistent losses and a business model yet to prove itself as profitable even against what's the most marked period of solar adoption ever. The company recorded a net loss attributable to shareholders of $81.1 million for the first quarter, up 131% from $35.1 million in the year-ago comp as interest expenses disrupted the highly levered business model. This will continue to form a headwind even with adjusted EBITDA coming in at $14.6 million during the quarter. Bears would be right to flag that this metric which strips out interest expenses still had a comparatively slower year-over-year growth of just 16.8% during the first quarter.
The company is guiding for adjusted EBITDA for the full year to come in between $235 million to $255 million, a huge increase from adjusted EBITDA of $119.1 million in 2023 with cash and equivalents as of the end of the first quarter at $210.9 million. This was down sequentially from $360.3 million with Sunnova's overall liquidity falling to $602 million during the quarter. This included $215 million of capacity in the company's warehouses and tax equity. However, with net losses ramping up on the back of interest rates that remain elevated, I do not see a stronger recovery in view for the company until it's able to stabilize its net losses. Hence, Sunnova isn't a clear buy yet.
For further details see:
Sunnova: Not Yet Time To Buy Solar Even As The Renewable Energy Runs Hot