Sunrun hit by RBC downgrade, target halved on policy, cost risks

Investing.com -- Sunrun Inc (NASDAQ: RUN). was downgraded to Sector Perform from Outperform at RBC Capital Markets after the latest U.S. Senate proposal signalled the potential elimination of residential solar leasing tax credits, raising concerns about the company’s cash generation and cost competitiveness.

The broker also halved its price target on the rooftop solar provider to $5 from $12 given the limited visibility into long-term profitability under the revised legislative environment.

The proposed Senate reconciliation bill would remove solar tax credits under Section 25D for leased residential systems, which make up a significant portion of Sunrun’s customer base.

Although credits for battery storage, comprising around 70% of installations, are preserved, analysts said the solar portion of systems, which accounts for less than 30% of the installation value, would no longer qualify.

Without subsidies, Sunrun’s offerings could struggle to compete against conventional utilities in most U.S. regions unless there are substantial declines in interest rates, system costs, or sharp increases in utility prices.

Analysts estimate solar costs need to undercut incumbent utility rates by 10%–20% to incentivize adoption, a threshold not currently met.

The firm flagged elevated soft costs in the U.S. solar market, including higher sales and marketing expenses, permitting fees, and overheads. U.S. residential system costs, it said, range between $2.25–$3.25 per watt, well above European benchmarks of $1.50–$2.50 per watt.

While longer-term trends such as rising utility rates and Sunrun’s scale may support competitiveness, the broker expressed uncertainty over the timing and sustainability of the company’s return to positive cash flow.

The revised price target is based on a 0.5x price-to-book multiple, down from historical levels above 1x.

Sunrun shares are down more than 60% so far this year.

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