Sunrun Inc (NASDAQ: RUN) Stock: Bright Days Ahead for the Residential Solar Industry?

Renewable energy is one of the more compelling industries to look at in the stock market at this time. Instead of using limited energy resources like fossil fuels to power cars and houses, there are companies that are fully focused on finding ways to use natural energy sources like wind, solar, and hydropower to power our daily lives. The result is products that don’t produce pollution and save consumers a lot of money. With conversations about how to deal with climate change on the rise, it’s safe to say the demand for renewable energy sources is greater than ever.

Sunrun Inc (NASDAQ: RUN) is one of the more intriguing renewable energy companies to check out at this time. The company operates in the residential solar industry and its stock has rallied over 50% in July alone. Sunrun recently announced the acquisition of its major competitor Vivint Solar to become the biggest rooftop solar company in the market. Solar panel technology is innovative and the company still has a lot of room to grow, which is why there could be brighter days ahead for this stock. Let’s dive into Sunrun’s business and assess whether or not the stock will continue its hot streak below.

Why Residential Solar?

If you aren’t familiar with the term residential solar, it involves adding solar panels to the roof in order to power a home. Harnessing the power of the sun has a lot of advantages, including cost savings on electric bills, tax credits, increased home values, and reducing the environmental impact of your family’s energy consumption. It’s hard to deny that the growth potential for residential solar is immense, with only 3% of household energy production in the United States currently powered by the sun.

Since Sunrun is the leading provider of residential solar, storage, and energy services, the stock has the potential to take off over the next few years. The company was able to grow its customers to 298,000 as of Q1 2020, which was an increase of 23% year-over-year. A survey conducted by Pew Research in 2019 found that more than four-in-ten U.S. homeowners are considering residential solar panels, which proves that people are open to residential solar power.

Acquisition Creates a Solar Giant

Last week, Sunrun announced its plans to acquire its competitor Vivint Solar (NYSE: VSLR) for an all-stock transaction that values Vivint at $3.2 billion. The acquisition is poised to transform the residential solar industry by creating the largest home solar and energy services provider in the country. The company anticipates $90 million of cost synergies on an annual basis thanks to improved operational efficiencies, which should improve earnings for shareholders. The two companies combine for 75% of all new residential solar leases each quarter. Acquiring a major competitor should also allow Sunrun to increase its pricing.

Prior to this announcement, Sunrun faced direct competition in the residential solar market from Vivint Solar and Tesla (NASDAQ: TSLA). Since the top two companies in the industry, Sunrun and Vivint Solar, are now combined, Sunrun pretty much only has Tesla standing in its way. Tesla only has around 4.6% market share of the U.S. residential solar market and it appears that it is a company focusing on selling electric cars at this time rather than working on its solar energy business. Believe it or not, Tesla is actually an important supplier for Sunrun and provides Tesla’s Powerwall battery storage systems to the company via a partnership. With minimum competition, it appears that Sunrun should be able to capitalize on the growing trend in renewable energy for years to come.

Too Hot for Now

Sunrun stock undeniably has a lot working in its favor and the stock has been performing extremely well. The residential solar industry is growing quickly and this company could absolutely end up rewarding patient long-term investors. With that said, after the recent run to all-time highs, it might be best to hold off on opening new positions at this time. If the stock dips significantly and you believe in the long-term growth of the residential solar industry, Sunrun is definitely worth a look. Otherwise, it’s probably wise to wait and see how the acquisition plays out and how the company’s sales will be affected by the global pandemic before opening new positions.