Shares of residential solar installer Sunrun Inc. (NASDAQ: RUN) jumped 41.3% in June, according to data provided by S&P Global Market Intelligence, after an upgrade from an analyst and some positive news flowing through the industry.
The biggest move came on June 20, when Goldman Sachs analyst Brian Lee upgraded the stock to a buy rating and gave it a $10 price target. Lee thinks there's a lot of unlocked value on the balance sheet, and that Sunrun could be an acquisition target. It's not clear who would want to buy Sunrun, particularly after SunEdison's disastrous run after agreeing to buy Vivint Solar, but the speculation resonated with the market.
Solar demand also seems to be up for the residential industry, although that's a double-edged sword. Higher volume would be good, driven by a rebound in California after bad weather impacted the first quarter. But higher solar-panel prices are being reported, which would raise costs and make it harder to make money building solar systems long-term.
I've long questioned Sunrun's business model, and none of the month's moves address the high costs or rosy valuation assumptions that investors should be worried about. Second-quarter results, which will likely be released in August, will also give us an idea where customers are trending. National installers like Sunrun have been losing market share over the past year, but Sunrun has bucked that trend recently. If it can continue that while moving to more cash or loan sales and lower costs, it could have a business model that investors could get behind long-term. But the ebbs and flows of rooftop solar will continue, so don't expect it to be a smooth ride.
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