SunRun vs. SunPower: Which Solar Stock Is a Better Buy?

After an emphatic run in the past decade, several growth stocks have lost momentum in 2022, as investors are worried about rising inflation rates and the threat of multiple interest rate hikes. These include clean energy companies such as SunRun (RUN) and SunPower (SPWR), which are down 76% and 71% from all-time highs, respectively.  

Despite the pullback, SunRun and SunPower have returned 276% and 245% to investors in the last five years, compared to the S&P 500 gains of 106%. However, the long-term prospects for the two companies remain solid given the worldwide shift towards clean energy solutions.

In fact, the global solar energy market is forecast to grow from $52.5 billion in 2018 to $223.3 billion in 2026, indicating a CAGR of 20.5% between 2019 and 2026. Today I’ll analyze and compare SunRun and SunPower to determine which is currently the better investment.

SunRun

Valued at a market cap of $4.71 billion, SunRun is engaged in the development, installation, sales, and maintenance of residential solar energy systems in the U.S. It also sells energy systems and products that include panels to customers, in addition to battery storage.

While interest rates are bound to move higher in an inflationary environment, it remains near historic lows. Right now, solar energy projects have the opportunity to rope in enviable financing rates. In fact, SunRun recently raised $425 million at 2.25% which is attractive to build an infrastructure of solar projects which will bring in cash flows for several years.

SunRun sales rose by $760 million in 2018 to $922 million in 2020. Its revenue is forecast to rise by 71% to $1.6 billion in 2021 and by 14.5% to $1.81 billion in 2022. Its loss per share is also forecast to narrow from $1.06 in 2020 to $0.33 in 2022.

SunPower

Valued at a market cap of $2.76 billion, SunPower delivers solar solutions all over the world. The company reported its preliminary results for Q4 and stated it will replace third-party connectors in its CIS (commercial and industrial solutions systems) and light commercial value-added reseller due to a cracking issue found in these connectors.

The replacements will cost SunPower $31 million in Q4 of 2021 and Q1 of 2022. So, SunPower now forecasts Q4 adjusted EBITDA at the low end of its initial guidance which stood between $18 million and $41 million.

SunPower is on track to report sales of $1.28 billion in 2021, compared to $1.12 billion in 2020. Analysts expect SunPower's revenue to touch $1.62 billion in 2021. Its adjusted earnings are also forecast to touch $0.43 in 2022, compared to a loss of $0.07 in 2020.

The stock remains a quality bet given it will benefit from secular tailwinds and its residential homes installations soared 33% to 53.3 million in Q4. SunPower confirmed it will sell its low-margin CIS business to focus on the residential segment, which should shore up the company’s balance sheet.

The verdict

The sell-off in solar stocks has corresponded with a rise in interest rates. Investors expect higher rates to negatively impact cash flows making solar projects less valuable. But the two companies should continue to outpace the equity markets going forward.

However, I believe SunRun is currently the better buy.  SunRun is ideal for growth investors with a larger risk appetite as it's poised to gain over 100% in the next 12-months, compared to SunPower’s expected returns of 30%.

RUN shares were trading at $23.24 per share on Monday morning, up $0.47 (+2.06%). Year-to-date, RUN has declined -32.24%, versus a -7.65% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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