Why a Blue Wave May Signal More Green for Sunrun

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With 2020 chock full of special purpose acquisition companies (SPACs) and reverse mergers, the recent deal at Vivint Solar is a breath of fresh air. That’s because the company completed its standard, meat-and-potatoes stock-only merger with Sunrun (NASDAQ:RUN). This bolstered the bullish case for RUN stock.

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Of course, this combining of forces has significant credibility. Unlike some of the speculative SPACs out there, solar energy demand has been booming. What’s more, the newly merged company may stand to gain from the close of the election — depending on the results.

RUN Stock and the Merger

As Louis Navellier explained, the Vivint-Sunrun deal makes sense on all fronts. Primarily, Vivint Solar will, “by association with Sunrun, become a big fish in a small but growing pond.” According to industry studies, residential solar has only penetrated 3% of the U.S. market. However, nearly nine out of 10 Americans favor expanding the use of solar power.

Strategically, the merger is also a benefit to RUN stock. Navellier explains that “Just the cost synergies alone, estimated at $90 million annually, will make the acquisition well worth the price of admission.”

Further, the two companies operate similarly, generating revenues from selling specialized solar equipment. They also add to the top line via “lease-like deals, installing the systems for little or no up-front charge and billing people each month for the power they produce,” according to Barron’s. With the merged organization now having a customer base of about half a million, the leasing catalyst should do wonders for the stock.

However, not everyone is completely on board with the idea. Although InvestorPlace contributor Larry Sullivan appreciates the many synergies on tap, he also warns about the potential negative impact on investor psychology. Sullivan stated before the merger:

“Holding on for the integration of the two companies makes sense if you trust Sunrun’s ability to smoothly merge the firms. I must say, though, investors bought VSLR for a reason and they may not hang around.”

Certainly, Sunrun stock has been volatile after the two made it official. So, is there still room for this narrative to grow, or should stakeholders duck for cover?

Politics and Young People in the Long Run

Unless you believe that the polls are fake again, it’s looks likely that former Vice President Joe Biden will be the next President of the United States. Now, I won’t bother sharing all the numbers — you can easily look for yourselves. Even Fox News seems worried that the Republicans are about to lose control, for what it’s worth.

But to assuage those who want President Donald Trump to have a second term, he still has a chance. And even if he loses, it’s not the end of the fiscal world as we know it.

The exception, though, is California. After every election cycle, Californians can reasonably expect taxes to go higher. And it’s possible that with new tax laws targeting the wealthy, businesses might leave the Golden State and head for less-burdensome states. This includes Nevada, which is also one of the top states where millennials are heading.

Why is this pertinent? Because investors should foresee Sunrun’s possible, longer-term political and demographic tailwinds. This is especially true as businesses and young people look for places that are cheaper to live in and work from.

Though Nevada (and Arizona, where solar companies thrive) offers more bang for the buck, it’s also atrociously hot. Therefore, during the summer season, residents must crank up the AC. Because of this, electricity bills can jump to ridiculous levels.

Thus, that 3% solar penetration rate will likely increase over the next few years as millennials get older, take on more responsibilities, and move to states with less tax-burden but more heat. Not only will solar look attractive to Nevada’s current residents, but Democrats taking control will probably mean higher taxes, at least in blue states.

Of course, Nevada is just an example of the possibilities as well. Essentially, we could see a mass exodus to tax-friendly states, with the resultant collective savings applied toward solar energy solutions. That would be a huge boon for RUN stock.

The Election Could Step On Sunrun Now

That all being said, for now Sunrun is looking volatile, due large in part to the election drama. Depending on who takes the White House, economic policy is at stake. And with investors still remembering the shocking events of 2016, they may be unwilling to risk holding the bag.

What’s more, the markets could respond in a significant way, depending on who wins. Given the uncertainty, and the possibility — no matter how remote — of Trump winning, you may want to sit RUN stock out until after the election. But, if you’ve got a long time horizon, the fundamentals mentioned above are too powerful to be denied.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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