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What Do Analysts Expect for Sunrun’s Margins in 3Q16?

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Sunrun’s gross profit estimates

Sunrun’s (RUN) gross profit for 2Q16 came in at $22.3 million. For 3Q16, analysts expect the company to report a gross profit of $23.3 million. The expected marginal increase in its gross profit is primarily due to the anticipated decrease in its cost per watt installed.

Moving ahead, the company expects its creation cost per watt to be ~$3.46 by 4Q16 as compared to $3.67 per watt reported during 2Q16. As discussed earlier in this series, Sunrun’s built installation cost is expected to be ~$2.00 per watt compared to $2.27 per watt reported for 2Q16.

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A higher gross profit implies that a higher portion of revenue is retained by the company after accounting for the cost of goods sold. For 3Q16, analysts expect Sunrun to report its gross profit margins to 17.3% compared to 18.2% in 2Q16 and 8.9% in 3Q15. The year-over-year increase is primarily due to an expected increase in cash sales with third-party loans.

Operating income

Sunrun (RUN) reported an operating loss of ~$48 million in 2Q16. For 3Q16, analysts expect Sunrun’s operating loss to be ~$61 million. The expected increase in operating losses is primarily due to an anticipated decrease in the company’s 3Q16 gross margins.

The downstream solar industry is a capital-intensive industry that is in its growth phase. The incumbent player spent huge upfront capital to gain market share.

However, income is generated from solar leases or power purchase agreements over the span of 15–20 years. As a result, operating losses are common among downstream solar (TAN) companies such as SolarCity (SCTY), Sunrun (RUN), and Vivint Solar (VSLR), as well as the downstream operations of SunPower (SPWR).

In the next two parts of this series, we’ll discuss the key factors in Sunrun’s 3Q16 earnings that are important to investors.

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