Shares of solar developer Sunrun (NASDAQ: RUN) jumped as much as 12% in trading today after the company reported first-quarter 2021 financial results. At the close, shares were still up 11.7%, just below the solar stock’s daily high.
Quarterly revenue jumped 58.9% to $334.8 million, and the net loss was $23.8 million, or $0.12 per share. The increase in revenue was driven largely by the acquisition of Vivint Solar last year.
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Net earning assets — which are calculated as the present value of future cash flows from solar projects minus debt, all discounted by a 5% rate (down from a previously used 6% rate) — increased by just $59 million to $4.23 billion. I’ll also note that contracted net earning assets (which exclude the assumed renewal of power purchase agreements on 20-to-25-year-old equipment) actually declined by $35 million to $1.59 billion. This is the metric investors should watch most closely, and it’s troubling that it’s on the decline.
What investors are really cheering today is management increasing installation-growth guidance for the full year from a range of 20% to 25% to a new range of 25% to 30%. Sunrun is a growth story, so more installations are seen as a good thing long term.
Sunrun continues to grow installations rapidly, but investors should be concerned about the value-creation metrics management is using. Lowering the discount rate used, even by a percentage point, instantly results in a higher value in the net-earning-asset calculation than was reported when the discount rate was higher. I’m skeptical about the lower discount rates and the value Sunrun says it’s creating, but that hasn’t stopped investors from piling into the stock today.
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