With the recent acquisition of Vivint Solar (VSLR), will Sunrun (RUN) dominate the residential solar panel industry? Will the merger fix the long term business model problems that both companies have?
This is Sailesh Tirupasur. I'm a part of Stock Card's summer internship program in 2020, and this post is a part of my Stock Battle series. I don't own these two stocks, and my goal here is to study them to decide whether to invest or not.
These stocks are apart of our Companies Shaping the Future stock list, if you want to see other stocks in this category, click here.
Stock research and analysis:
The global solar energy market is a multibillion dollar industry and according to Allied Market Research is projected to reach $223 billion by 2026, growing at a rate of 20% annually. The need for new sustainable energy has caused many companies to tackle this issue by offering solar energy to mainly residential customers. Two prominent solar companies that have investors excited are Vivint Solar (VSLR) and Sunrun (RUN). Sunrun is in the process of squiring its smaller rival, Vivint Solar. If approved, the merger will create a new titan in the American solar market: the largest solar installer and solar panel lessor in the country, with annual sales exceeding $1.2 billion. The deal comes as America’s consumer solar panel industry claws its way back from the difficulties of the pandemic. Door-to-door sales, a common marketing practice for solar panel businesses, practically ceased as lockdowns were enforced in most states. Experts are quite positive on the deal though and are bumping Vivint Solar's price target from $12 a share to $18 and Sunrun's from $25 to $32. Once merged, the company is expected to control a massive 23% of the solar installation market, beating out other competitors such as Tesla (TSLA).
While many investors are excited about the acquisition, there are still several of problems that these companies face in the long term. Long term solar products are considered risky due to how fast the solar panel industry is changing and evolving. Customers, as a result, might not be receptive to older solar panel models in their house and on their rooftop. Costs also seem to be an issue for both Sunrun and Vivint Solar. The residential solar market has been very liberal with their pricing methods.The entire market tends to resort to falling prices to appeal to a larger audience. A team-up between Sunrun and Vivint Solar will have little impact on their cost problem over the long term. While this acquisition could allow Sunrun to maintain higher prices for longer due to reduced competition, Sunrun will still have to contend with a shaky business model. Lastly, the quality of competition in the residential solar market is going to increase dramatically moving forward with new competitors in the space.
There seems to be plenty of reason to get behind this merger due to their large market share as well as positive investor sentiment. However, both these companies' business models will be tested in the long term once better solar technology is developed.