Key Points
- SunPower raised $175 million in new capital financing, but Guggenheim Securities downgraded shares to a Sell rating with a $1 price target due to dilution concerns.
- SunPower has a 37,000 home backlog in its New Homes channel, representing 18 to 24 months of installation.
- Sunrun is transitioning to a storage-first company as it expands beyond rooftop solar into virtual power plants and Brightbox battery systems.
- SunPower raised $175 million in new capital financing, but Guggenheim Securities downgraded shares to a Sell rating with a $1 price target due to dilution concerns.
- SunPower has a 37,000 home backlog in its New Homes channel, representing 18 to 24 months of installation.
- Sunrun is transitioning to a storage-first company as it expands beyond rooftop solar into virtual power plants and Brightbox battery systems.
- 5 stocks we like better than SunPower
While the oils/energy sector had modest gains in 2023, solar energy stocks took a beating. The Invesco Solar ETF NYSEARCA: TAN is down 38.53% on a trailing 12-month basis and down 12% year-to-date (YTD). While solar trackers have been exceptionally strong, solar energy systems and panels are starting to show some strength as of February 2024, as TAN has rebounded 3.6% in the past month. Investors seeking a contrarian bet may consider taking a look at these two solar stocks.
SunPower Co.
SunPower Co. NASDAQ: SPWR is a leading manufacturer of photovoltaic solar panels and solar energy systems. Their products are geared towards both the commercial and residential markets, providing sustainable and renewable solar power options. Their Maxeon solar cells use Interdigitated back contact (IBC) technology, which offers more energy yield, efficiency, and reliability than conventional panels.
Rather than front energy conversion, IBC has back contact energy conversion that allows the entire front of the cell to absorb sunlight, converting more photons to energy without any shading from metal ribbons. Maxeon cells are the industry's most efficient panels, proven to be 20% more efficient than PERC panels.
Sizzling results
On Feb. 15, 2024, SunPower reported Q4 2023 losses of 51 cents, missing consensus estimates by 25 cents. Revenues fell 28.3% YoY to $356.9 million, matching consensus estimates. The company added 16,000 new customers in the quarter. New home installation grew 19% sequentially.
The company had a backlog of 52,100, including 15,100 in the Retrofit home channel and 37,000 in the New Homes channel. The New Homes backlog represents 12 to 24 months of installations.
Path to improved profitability and cash flow in 2024
The company is targeting positive cash flow in the second half of 2024 despite uncertain demand. SunPower identified $100 million in cost of goods sold (COGS) and operating expenses (Opex) that are in the process of execution by mid-year. This includes the consolidation of the SunPower Direct site. Lower logistics costs and reduced overhead.
SunPower is shifting to lower-cost suppliers as its legacy panel supply contract expires in February 2024. The company expects a 30% to 50% decline in panel costs under the new arrangements. The company expects to deploy a new third-party energy storage product in Q2 2024 with up to a 50% decline in cost versus the legacy SunVault program.
The company expects a 20% decline in racking costs after shifting to new suppliers and expects to realize a 37% decline in overall equipment expenses. Check out the sector heatmap on MarketBeat.
Additional financing
The company raised $175 million in new capital financing from Global Infrastructures Partners and TotalEnergies. This includes $80 million in new investment, $45 million in prior bridge financing, and $50 to be borrowed upon satisfaction of certain terms. SunPower states it's the highest-rated solar company in the United States, with more than 15,400 five-star customer reviews.
2024 forecasts
SunPower is focused on profitability and gross margin overgrowth in 2024. Adjusted gross margin is expected to improve from 13.6% in 2023 to 17% to 19% in 2024 and higher than 20% in 2025. The company expects positive free cash flow in the second half of 2024 and the full year 2025. GAP net losses are expected between $160 million to $80 million versus $247 million in 2023. Falling interest rates in 2024 is a tailwind.
SunPower CEO Peter Faricy commented, “2023 was one of the toughest years this industry has had to endure, and we know that last year was as frustrating for you as it has been for us. We have been taking concrete actions designed to position the company for success in 2024 and beyond, even if consumer demand declines.”
Analyst downgrades
Guggenheim downgraded shares of SunPower to Sell from Neutral with a $1 price target. While the $175 million in financing improved near-term liquidity concerns, it was dilutive, and the cost to equity shareholders is much more significant than markets realize due to the 41.8 million shares of warrants issued to Sol Holding.
Analyst Joseph Osha commented, "We can't see how SPWR generates cash on a more sustainable basis and with operating expenses being cut and cash preservation a primary focus, we don't see how the company avoids losing market share in 2024."
Bank of America maintained its Underperform rating but cut its price target to $2.50 from $3.50, citing potential dilution concerns.
SunPower analyst ratings and price targets are at MarketBeat. SunPower peer and competitor stocks can be found with the MarketBeat stock screener.
Daily ascending triangle breakdown
The daily candlestick chart on SPWR illustrates an ascending triangle pattern. The ascending trendline commenced at $3.03 on Feb. 5, 2024. Shares peaked at the flat-top upper trendline at $5.20 and fell back under the daily 50-period moving average (MA) support at $4.01. SPWR fell back under the ascending trendline, testing the weekly market structure low (MSL) buy trigger at $3.65. The daily relative strength index is falling through the 50-band. Pullback support levels are at $3.03, $2.74, $2.51 and $2.15.
Sunrun Inc.
Sunrun Inc. NASDAQ: RUN is a leading provider of solar panels and storage solutions for residential markets, pioneering a solar-as-a-service (SaaS) model. It has transitioned to a comprehensive service business model focused on moving beyond just rooftop solar panels. The company has expanded into home energy management solutions, virtual power plants, and energy storage systems like its Brightbox battery systems, which are comparable to Tesla Inc. NASDAQ: TSLA Powerwall systems. It targets customers primarily in California, New York and Massachusetts. Get AI-powered insights on MarketBeat.
They offer complete design, installation, and monitoring of solar systems that are tailored to each customer's home. Sunrun utilizes machine learning and data analytics to optimize system design and operations. Rather than direct sales, they leverage partnerships with major homebuilders and associations like the National Association of Home Builders and retailers like Costco Wholesale Co. NASDAQ: COST, resulting in low customer acquisition costs. The company offers low money-down leases on its systems.
The glass was half-full
On Nov. 11, 2023, Sunrun reported GAAP revenues of $563.2 million, down 11% YoY. Customer agreements and incentives revenues rose 17% YoY. Solar energy products and systems sales fell 32% to $114 million. The company took a $1.2 billion non-cash impairment charge related to its acquisition of Vivint Solar in October 2020, or $5.32 per share, bringing a net loss to $4.92 per share. Non-GAAP net income, excluding the goodwill write-down, was 40 cents per share or $88.5 million.
Sunrun CEO Mary Powell commented, “We are fundamentally and rapidly transitioning to a storage-first company to offer the most pro-consumer product, expand our margins, and lay the foundation for increased value streams from our growing fleet of networked storage systems." Powell concluded, “We have taken deliberate go-to-market optimization actions, including repositioning geographic mix, sales route mix and product mix as we transition to a storage-first company.”
Sunrun analyst ratings and price targets are at MarketBeat. Sunrun reports its Q4 2023 earnings on Feb. 21, 2024.
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