SunPower stock was dropping by more than 11% on Thursday as Wall Street’s expectations for the solar-power installer have shifted. It’s gone from a company with strong potential whose stock rose 400% last year despite losing money, to one that’s now expected to produce consistent profits.
So SunPower (ticker: SPWR) now faces higher expectations. Its fourth-quarter earnings report, released late Wednesday, didn’t quite match those expectations on the revenue side. Earnings per share of 14 cents beat expectations for 11 cents, but revenue of $342 million missed expectations for $354 million.
SunPower also tightened its revenue guidance for 2021, saying it expects growth of 35% after previously projecting a range of 30% to 50% growth. SunPower does have major growth potential, but its valuation is now so high that investors may now take pause.
After adjusting for the company’s stake in solar investor maker Enphase Energy (ENPH), Raymond James analyst Pavel Molchanov writes that the company now trades at 35 times its expected earnings before interest, taxes, depreciation, and amortization, or Ebitda, “a level from which it is difficult to envision further multiple expansion.”
Molchanov also notes that unlike other solar installers like SunRun (RUN) and Sunnova Energy International (NOVA), SunPower mostly sells its panels directly to consumers instead of leasing them—which means its revenue isn’t recurring. Investors often like recurring revenues from companies like this, because they can trade more like subscription businesses than hardware sellers.
After adjusting for certain items, SunPower lost money in 2019 and 2020, according to FactSet, but it’s expected to be profitable this year and next. In an interview with Barron’s after earnings, SunPower CEO Tom Werner said one reason for the shift is that the company is getting “better financing than we’ve had previously” from lenders who see the durability of its business model.
In addition, he said, more people are buying battery systems with their panels, allowing them to store energy and potentially have backup power when the grid is down. And the overall growth of the industry is giving the company economies of scale that translate into better numbers.
SunPower has also gotten help from Congress, which last year extended federal tax credits worth 26% of the value of solar projects. Werner thinks those credits could be extended even longer by Congress.
“There is a long list of things that the Biden-Harris administration are working on, like funding research and development through the Department of Energy on things like the integration of storage and solar in a community and creating micro grids,” Werner said. “There is upgrading federal buildings. There’s the potential for a renewable standard for their country. But by far the biggest thing would be the investment tax credit”—and whether or not battery storage systems would also qualify for a tax credit.
SunPower stock was down 11.4%, at $38.64, in recent trading. The S&P 500 was down 0.9%.
Write to Avi Salzman at [email protected]
