Summary
- Sunrun's fiscal 2022 fourth quarter earnings saw the company report dual beats on revenue and earnings.
- Revenue was bolstered by an energy crisis and grew by 40% over its year-ago figure.
- Residential solar is set to grow by at least a 15.4% compound annual growth rate through 2030 to set the backdrop for Sunrun's sustained growth over the decade.
Sunrun's ( RUN ) future under the sun was always going to be bright, and 2022 formed a watershed year for the home solar company and the broader transition to green energy. To be clear, 2022 was the year of a generational energy crisis, war, and the most instrumental green subsidy regime in US history. These all aggregated together to ramp up a great advance of solar on a scale we've never seen before. Once a broadly fringe yet fast-growing sector, home solar has exploded into the mainstream over the last few years, and Sunrun stock's earnings have come to increasingly reflect this.
Bulls would be right to highlight this as one of the most dramatic growth stories in the market. Indeed, the US residential solar market is expected to grow to reach at least $44.7 billion by 2030, a compound annual growth rate of at least 15.4% from 2022 to 2030. In 2020, just 3.7% of US homes had solar panels installed, with sunnier US West leading the way.
It's easy to see the long-term growth potential of the industry, with adoption still in a relatively nascent state and a long way from maturity. Critically, recently instituted US government subsidies, Russia's war on Ukraine and the subsequent energy crisis have catalyzed a new zeitgeist defined by a need for energy security being layered with the great march towards net zero. These factors and the need for cheaper utility bills all now form pillars of growth for home solar adoption. Growth of Sunrun's new customers, revenue, and profit during the most recent fiscal 2022 fourth quarter was strong.
As this secular growth story builds itself out, Sunrun has realized a material downsizing of its valuation multiple on the back of the Fed funds rate rising to its highest level in over a decade. The current Fed funds rate upper limit is set for two further 25 basis point hikes to continue to pose a near-term headwind to positive price returns. The current PS ratio is almost at its lowest level in over three years and sets the tone for an eventual move upward on the back of continued growth and stabilization of inflation and interest rates.
The Fiscal 2022 Fourth Quarter Results
Sunrun's fiscal 2022 fourth quarter earnings saw revenue come in at $609.52 million , an increase of 40% from the year-ago quarter and a beat by $20.63 million on consensus estimates. This was built on the back of 37,359 customer additions during the quarter and included 27,493 subscribers to bring Sunrun's total customer base to 797,296. Overall, total customers grew by 21% over the year-ago quarter, with annual recurring revenue reaching $1.04 billion. Subscribers describe households that have signed up for a monthly lease plan. They had an average contract life remaining of 17.6 years exiting the fourth quarter, with Sunrun deploying 275.4 MW of panels during the quarter, a new record.
Profitability improved markedly during the quarter, with net income of $63 million, or $0.29 per share. This was a material beat of $0.56 per share, with analyst consensus expecting a loss of $0.27 per share. Profit was driven by what management stated was strong cost discipline from operational changes. For example, the company grew new installations by over 25% in 2022, but headcount only grew at a third of this rate, with average crew hours spent on an installation improving by 23% in the quarter versus the year-ago comp. This was driven by a 12% reduction in average crew size. These operational efficiencies are being layered with productivity gains to increasingly improve Sunrun's operational gearing. G&A expenses fell by around 12% versus fiscal 2021 with G&A per new customer during the fourth quarter falling to $1,100, a 29% reduction over its year-ago comp.
Entrenched Profitability Is Now A Possibility
Against its bears, who have sold short 15.37% of the float, Sunrun has opened up the specter of sustained profits. The commons had a muted reaction to the earnings and ended the trading day after their release down by ~2% as broader stock market angst around the still-rising Fed funds rate continues to impact the valuation of high-growth tickers across all industries. Sunrun is guiding for solar energy capacity installed to come in at 215 MW to 225 MW in the first quarter of 2023 with net subscriber value expected to be around $10,000 for the same quarter.
Bullishness on the long-term thematics driving increased solar adoption has for now been displaced by still pertinent concerns around the Fed funds rate. However, the medium to long-term future of Sunrun looks bright, with inflation falling and generating energy from the sun now a core policy objective of the US government. Thematics from the race to dampen anthropogenic climate change, to the pursuit of greater energy security, and the overall drive to displace fossil fuels in the energy mix is now entrenched in the post-pandemic economic zeitgeist and will continue to influence US government decisions in a way to continue to boost home solar demand. I'm still neutral on taking a position here, but an opportunity could open up later this year.
For further details see:
Sunrun: Leaning Towards Alpha