SunPower Corporation (NASDAQ:SPWR) shares climbed by as much as 3.9% to $15.03 during regular trading hours on Wednesday after analysts at UBS upgraded them, saying that the recent pullback was overdone. They also boosted their price target from $31 to $22 per share.
SunPower hammered with other solar stocks
Analyst Julien Dumoulin-Smith and team assumed coverage of SunPower in a report dated July 6. They noted that there’s been a great deal of “dislocation” among solar stocks, but they believe SunPower has a strong track record in technology, strong project development history, and a solid balance sheet.
They believe the 50% decline in SunPower shares so far year to date is due to negative sentiment and broad-based pressure resulting from First Solar’s weak Analyst Day and the possibility of a resurgence in supply for solar panels. They add that the multiple being assigned by the market is pricing in another downturn in solar panels similar to what occurred in 2011.
The UBS team explained that currently the market is valuing SunPower’s devco at about 5.1 times consensus 2018 estimates adjusted for CAFD value. Although they do see a parallel with a ramp in module capacity, they believe the significant decline in valuation reflects not only concerns about a decline in module margins but also expectations of profits rolling off from larger utility-scale builds.
They explain that there are early signs suggesting that utility-scale margins are “more intact expected.” They admit that they could be early on the module cycle but add that the company depends more on selling systems that have the highest efficiency possible, which they believe is “a niche that should maintain some premium.”
SunPower remains financially stable
The UBS team also believes SunPower is managing its cash and leverage better than its peers because it has taken a “more measured approach.” The only other solar company with a larger cash balance is First Solar. Additionally, Total has a $1 billion credit guarantee and $600 million in emergency liquidity.
They remain confident in SunPower’s ability to execute, both in the area of technology and on a strategy for higher panel volumes. The company’s P-Series panels have a low capital cost, which they said enables it to build out “significant capacity with less capital risk” compared to the more expensive IBC panels.
