Sunrun slips on end of Costco sales partnership, Truist sees no major impact

Shares of Sunrun (RUN) are under pressure on Thursday after disclosing that the company and Costco (COST) have mutually agreed to terminate their sales partnership. Sunrun will wind down its lead generation activities in Costco warehouses, with the current expectation of exiting its warehouse presence no later than December 31. Given that Costco sales constituted less than 10% of first half of 2024 volumes for Sunrun, Truist does not expect to see any significant financial impact from the break-up.

PARTNERSHIP TERMINATION: Sunrun and Costco have mutually agreed to terminate their sales partnership. Sunrun will wind down its lead generation activities in Costco warehouses, with the current expectation of exiting its warehouse presence no later than December 31.

“Sunrun’s clean energy subscription model, which is the company’s focus and provides customers the most value, provides less upfront revenue recognition under GAAP for Costco and thus, in the opinion of Sunrun, was not fully aligned with Costco’s financial objectives. Solar systems financed by third-party loans, or paid for in cash upfront, provide higher GAAP revenue treatment for Costco. Consistent with Sunrun’s strategy to focus on sustainable, profitable growth, and continuous evaluation of profitability by route, Sunrun and Costco were not able to reach mutually agreeable terms that would warrant continuation of the partnership long-term.

“Members who signed up through Sunrun representatives at Costco have enjoyed exclusive benefits including advantaged product pricing. Sunrun also realized lower battery attachment rates compared to other routes to market,” the company said in a statement. Costco currently represents less than 10% of Sunrun’s total volumes in the first half of 2024, it added. Sunrun does not expect these changes to have a material impact on the volume and cash generation projections previously shared in its Q2 earnings release.

NO SIGNIFICANT IMPACT: Commenting on the news, Truist noted that Sunrun said it plans to reposition a significant portion of its Costco sales reps to other retail/sales channels, including an expansion of the Lowe’s (LOW) footprint established earlier this year. Given that Costco sales constituted less than 10% of first half of 2024 volumes for Sunrun, with likely a higher weighting of cash/loan purchases at lower storage attach rates, the firm does not expect to see any significant financial impact, says Truist, which has a Hold rating and $18 price target on Sunrun shares.

PRICE ACTION: In afternoon trading, shares of Sunrun have slipped about 1.5% to $19.99.