Despite Massive Downgrades, Some Analysts Still See SunPower Shining Bright

Investing

Published: August 13, 2016 9:20 am

Last Updated: January 13, 2020 4:38 am

SunPower Corp. (NASDAQ: SPWR) managed to obliterate its shareholders in the past week. It was supposed to have decent earnings, but the guidance and the commentary about new competition hurting its orders created a drag-down effect for the entire solar industry during the week. When growth investors think of alternative and renewable energy’s growth prospects in the years ahead, they might begin to scratch their heads when they hear that a company has to have layoffs.

SunPower shares had fallen 3.4% to $14.78 the day ahead of earnings, but the guidance was so dismal (ditto for layoffs) that the shares were indicated down 30% at $10.30 to a new 52-week low even before the dust settled for the week. The stock hit a new low of $10.05 this week, but SunPower shares ended the week at $10.85. The prior 52-week low before the big drop was $13.29, and its 52-week high is $31.10.

24/7 Wall St. not only wanted to list the numerous downgrades, but also to see which firms were still telling their clients to be buyers on weakness.

It turns out that two firms think that this latest drop is a gift. Just make sure to keep in mind that when stocks drop 30% or more in a day that they almost never bounce back handily on their own internal efforts.

Some analysts did not release their downgrades immediately after the drop. Morgan Stanley downgraded SunPower to Equal Weight from Overweight on Friday, slashing its price target to $12 from $27. Barclays downgraded SunPower’s rating to Equal Weight from Overweight on Thursday, with its price target slashed to $12 from $23.

Other analyst downgrades of SunPower were seen as follows:

JPMorgan downgraded it to Neutral from Overweight and cut the target to $17 from $28.
Janney downgraded it to Neutral from Buy and the fair value estimate was slashed to $13.
Oppenheimer downgraded it to Perform from Outperform, but no price target is offered now.
Credit Suisse downgraded it to Neutral and slashed the price target to $12 from $32.
Deutsche Bank cut its rating to Hold from Buy and lowered the price target to $11 from $37.

Not everyone is advising clients to bail out here. We have two ratings that were seen in basic calls and two which were expanded upon.

Robert W. Baird’s team maintained its Outperform rating, but they did get more realistic on their price target, cutting that to $21 from $37.

Standard & Poor’s kept its Buy rating, but it is much more conservative now with a 12-month target price to $13 (down from $22).

Then there was Raymond James, which also maintained its Outperform rating. That firm’s analyst came on CNBC and said that investors should be more interested in a great company after its shares were battered. Pavel Molchanov, the solar analyst at Raymond James, believes that the market and the host of analyst downgrades are simply wrong to keep battering SunPower’s stock lower. Still, he lowered his target for clients to $20 from $30.

Molchanov told CNBC that the United States has a lot of room to grow its solar energy efforts. His appearance said:

We don’t have to wait 35 years. Look at Europe—Germany and Italy. Last year [solar] was almost 10 percent of total power generation. In the United States, we are not even at 1 percent… There’s enormous scope for solar growth in the U.S., and enormous technology improvements to be implemented. Europe has driven costs down by investing heavily in solar and the U.S. stands to benefit a great deal.

Merrill Lynch’s Krish Sankar also kept a Buy rating, but the firm’s price objective was lowered to $25 from $31 in that call. This is still more than 100% implied upside if correct, and the report said that SunPower is a top pick among solar stocks. That report said:

We see SunPower’s continued market share gains in the residential sector as a positive. However, the challenge facing this segment is that more home owners prefer cash sales/loans rather than a 20-year lease from the solar installer, thereby impacting EBITDA and the long-term cash flow stream. Other positives include management’s view of possible margin expansion in the commercial business and reduced operating expenses (~1,200 employee reduction).

The company offers the industry’s highest efficiency panel, has exposure to key growth markets globally, and is backed by global energy giant Total. In addition to utility-scale project opportunities, the company’s US-based rooftop leasing business holds long-term value. We see substantial opportunity for the company to leverage high efficiency technology and low-cost Total-backed financing to expand contracted project opportunities around the world.

Again, it would be silly to believe that SunPower is going to snap back immediately on its own. An outside force, or a merger would be able to change that view, but companies that get hit this hard just do not usually get immediately up off the floor.

SunPower’s new consensus analyst price target from Thomson Reuters was at $18.67 on Friday. It was more than $31 in July and above $32 in May.