As SunPower stock price collapses, focus turns to SunRun (RUN)

One of the biggest energy news this week was a going concern warning by SunPower, a leading player in the solar industry. As a result, the SPWR stock price tumbled by more than 32% on Monday, making it one of the worst performers on Wall Street. 

The warning sent shivers in the solar energy industry as most stocks retreated. First Solar stock tumbled by over 1.62% while SunRun (NASDAQ: RUN) shares retreated by over 3.22%. The closely-watched Invesco Solar ETF (TAN) ETF slipped by over 2.20%.

SunRun high debt burden

SunPower’s warning pushed investors to start focusing on other highly leveraged solar energy companies. One of these is SunRun, which is a company with one of the biggest debt burdens in the industry.

Looking at its balance sheet, we see that SunPower ended the last quarter with $103 million in cash and short-term investments. It had over $535 million in cash in the same period in 2022. At the same time, its short-term borrowings stood at $4.1 million while its long-term debt was more than $302 million. 

SunRun’s numbers are much bigger. The company had over $953 million in cash in the last quarter, an improvement from the previous quarter’s $669 million. This cash came from the company’s decision to securitize $715 million of residential solar and battery systems. It also raised $253 million through subordinated financing.

SunRun’s current portion of long-term debt stood at over $540 million while its long-term borrowings was over $9 billion. Therefore, we have a company with a market cap of $4 billion with over $9 billion in debt.

This is a major issue in the era of high-interest rates. While the Fed has pointed to three rate cuts in 2024, most analysts admit that the era of zero interest rates is gone. On a positive note, most of its financing is either fixed-coupon or long-dated securities. 

The other challenge is that the company’s business is not growing. Its total revenue on the third quarter came in at $563 million, down from $590 million in the previous quarter. Its net loss soared to over $1.4 billion, meaning that the company will need to raise additional capital in 2024.

Is it safe to buy SunRun stock?

RUN stock chart

I believe that SunRun stock is a high-risk and high-reward asset today. The biggest risk is that the company’s growth will decelerate while its total losses will remain at an elevated level.

The company could also move in the footsteps of SunPower and issue a going concern warning in the coming years because of its huge debt burden. Therefore, the risk is that the shares will move to zero in the long term.

On the reward side, the shares could bounce back as interest rates start falling in 2024. This could happen as investors move to beaten-down stocks in the US. This explains why the stock has jumped by over 115% from the highest point this year.

Also, since SunRun has a short interest of over 20%, there is a likelihood that it could have a short squeeze if interest rates start falling.

Therefore, I’d stay in the sidelines for now since I believe that risks outweigh the potential reward.