Sunrun (RUN) has been a big disappointment. After a huge run-up during the spring and summer, shares reversed sharply, losing roughly half of their value between early September and mid-October on concerns that higher interest rates would suppress demand for solar panel installations.
However, since its Oct. 24 low, RUN has rocketed 70% higher. This includes a more than 30% rally in the past two trading days, which is due in part to broader market strength (and a likely short squeeze), but it could also be a result of the failed “red wave” in the midterm elections.
The stock’s recent strength can also be attributed to the company’s third-quarter results, which were released last week. Sunrun blew through estimates, reporting earnings per share of $0.99 versus analysts’ call for a $0.06 loss. Revenue exceeded expectations, as well, rising 44% year over year to $631 million, easily beating the $564 million analysts forecast.
It seems investors’ demand fears were overblown, as I anticipated. Sunrun was able to increase the rates it charges customers to more than offset its costs. In fact, due to the rate increases, the value of its customers rose by 86% in Q3 over Q2 levels.
Sunrun’s recent results strengthen my bullish resolve on the fundamentals of the company (although it was already pretty strong). However, I want to see what happens with this latest rally before deciding whether to move on from the stock. If the $25 level fails to hold again, I think we can assume the shares are dead money.
While we wait and see, let’s sell a call to reduce our cost basis on the position.
Current Stock Price: $31.72
Cost Basis: $44.14
Action: Sell to open the RUN Nov Monthly (11/18) 35 Call
Current Option Price: $0.53-$0.63
Recommended Limit: Set your initial limit order at $0.58, but adjust as needed to sell a call today
New Cost Basis: $43.56
Expiration: After the close on Friday, Nov. 18
Potential Rate of Return: I am targeting breakeven for this position