Powering Down: Morgan Stanley Cites Valuation Concerns In Sunrun Downgrade

With the stock up more than 150 percent since the start of 2018 and 60 percent since April alone, the bullish case for Sunrun Inc (NASDAQ: RUN) is over, according to Morgan Stanley. 

The Analyst

Analyst Stephen Byrd downgraded Sunrun from Overweight to Equal-weight with a price target lifted from $8 to $15.

The Thesis

Sunrun benefited over the past few months from an improvement in solar market fundamentals, Byrd said in the downgrade note. The company still has multiple catalysts to support further upside, the analyst said:

• A new state policy in California that dictates all new homes under three stories tall need to include a solar panel as of 2020.
• Regulatory approval to operate in the "very sunny and very large" electricity market of Florida.
• Tightening spreads on solar financing that result in more favorable borrowing costs.
• ITC clarifications by the IRS could improve profitability in the early 2020s.
• Smaller-than-expected negative impacts from tax reform and solar panel import tariffs.

Despite the catalysts, the stock's massive run since the turn of the year implies a "less compelling path for outperformance," Byrd said. Morgan Stanley's revised $15 price target is based on a sum-of-the-parts model that values the current customer base at $8 per share and future developments at $7 per share.

Price Action

Sunrun shares were slipping more than 6 percent to $13.87 at the time of publication Friday.

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