SunPower shares plummeted 30% last night after the company slashed guidance by a massive amount, blaming current market conditions for the nasty surprise. Analysts from multiple firms slashed their price targets and, in some cases, downgraded the solar company’s stock as well. Others, however, aren’t ready to advise investors to exit the stock yet, although they did slash their price targets.
SunPower posted adjusted losses of 22 cents per share, beating Wall Street’s consensus of 24 cents per share in losses. The solar company swung to a GAAP loss of 50 cents per share from last year’s GAAP profit of 4 cents per share. Revenue for the second quarter came in at $420.5 million, which was well ahead of the consensus at $345.08 million. However, it wasn’t those beats that are the big story today.
SunPower downgraded by two firms
JPMorgan analysts downgraded SunPower from Overweight to Neutral and slashed their price target from $28 to $17 per share following last night’s guidance cut, but they weren’t the only ones. Credit Suisse analyst Patrick Jobin and team also moved to Neutral from Overweight but slashed their price target even further: from $32 all the way down to $12 per share.
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Jobin called the cut to SunPower’s 2016 and 2017 “surprisingly large” and said that investors have essentially gotten “SunBurned” by the company. The solar firm slashed its guidance for the second half of the year by about 40%, and its 2017 guidance was about 54% below the outlook given at its last Analyst Day.
SunPower’s guidance cuts are “problematic”
The Credit Suisse team referred to the guidance cuts as “problematic in their own rights” but added that the bigger problem is that the company’s management has lost its credibility. Also the cuts demonstrate a lack of stability in SunPower’s core business. They believe that management must begin the turnaround process by repairing their reputation because they slashed guidance due to factors that they believe “should have been apparent many months ago.” They describe the move as “disconcerting” as well.
SunPower slashed their 2016 calendar year outlook for EBITDA by 37% to $300 million from $475 million, blaming factors that Jobin believes were reasonable enough to assume that management’s previous guides would have included. Among the factors the company cited for its reduced guidance are competitive PPA pricing, a “tepid market” for issuing new YieldCo shares, and disruption in the market from the extension of the Investment Tax Credit for solar panel installations. None of these factors are new since management reiterated their outlook three months ago.
Goldman Sachs analysts see SunPower’s problems as being more than due to changes in the market, however. They believe that in addition to the challenging market conditions, the company faces issues that are specific to it. They slashed their price target from $18 to $11 per share but maintained their Neutral rating.
Down but not out on SunPower
UBS analyst Julien Dumoulin-Smith cut his price target from $22 to $13 per share but actually maintained his Buy rating on the solar panel firm’s stock. You may recall that he upgraded SunPower about a month ago. In his post-earnings analysis, he notes that the reduction in outlook is the sharpest cut yet in the solar sector and states that it reflects his “wider concerns.”
However, he’s not ready to exit SunPower because he sees the company as being more of a focus on residential and commercial customers now. He points out that margins in the utility side of the solar market have narrowed a lot recently, so the company now seems to be focusing on maintaining and expanding margins on residential and commercial projects. He sees the shift toward cash sales and loans as being important for the company to gain market share.
Shares of SunPower are down 30.28% at $10.31 as of this writing.