SunPower Corporation

SPWR Details

SunPower Corporation (NASDAQ: SPWR) is a leading solar energy company that offers complete solar solutions to customers primarily in the US and Canada with a range of products including hardware, software, and financing options, ‘Smart Energy’ solutions.

Q1FY21 Results Performance (For the First Quarter Ended April 4, 2021)

For the first quarter ended 4 April 2021, the revenue of the company stood at $306 million, up 5% over Q1FY20, primarily led by a rise in revenue from Commercial and Industrial Solutions that grew by 31% YoY to $66 million, followed by a rise in revenue from Residential, Light Commercial segment that grew by 2% YoY to $238 million. Strong revenue from both segments contributed to a rise in gross margin by 6 percentage points to 16% against 10% in the pcp. Further, the company reported a net loss of -$48 million from a gain of $22 million in Q1FY20.

Financial Snapshot (Source: Company Reports) 

Recent Update

On 2 June 2021, the company said that it has further strengthened its balance sheet with the full retirement of its 2021 convertible bond. The payment of the 2021 convertible bond as well as repayment of CEDA loan in Q2, is expected to materially reduce recourse debt and improve expected return on invested capital.

Outlook

The company is focused on positioning itself in the leading DG solutions provider category as DG sector provides a strong long-term growth outlook with ~35% revenue growth in 2021 with continued strong trends in 2022 and quickly accelerating DG storage attach rates to drive tremendous growth. Further, it has reported robust bookings and backlog growth including residential booking growth of 25%, CIS bookings +50% YoY, and backlog 275MW. Moreover, the company is building on continued residential business momentum as it added 12,000 customers in Q1FY21, $0.41/W residential value created, 200 MW new homes in backlog including multi-Family, 363,000 total customer bases, and reported a gross margin of 22%. In addition, expanding solutions to long-tail provides upside as it represents 70% of the residential solar market. Further, the company is focused on cost reduction, community solar and joint development with financing partners which will result in higher profitability in the upcoming years.

Key Risk

The company is exposed to the risks related to potential supply chain disruptions from natural disasters or epidemics, intense competition in the energy industry with downward pressure on selling prices and wholesale energy pricing, regulatory changes and it’s dependence on limited-source supply relationship with Maxeon Solar Technologies, challenges in managing its acquisitions, JVs and partnerships.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock opened lower, making a new low over the past two weeks, but it managed to close higher for the ongoing week, covering all the losses it incurred over the past two weeks. The technical indicator RSI with a reading around 47 and a curve at the end pointing up, suggests gaining of positive momentum.

Going forward, the stock may have resistance around the 50% retracement level of $30.89 whereas support could be around $20.00.

Stock Recommendation

The stock rose by ~127.47% in 9 months. It has made a 52-week low and high of $4.5308 and $57.5199, respectively. 

We have applied EV/Sales based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering a wider installer network as partnerships are underway, financing solutions for dealers who use other financings and increase in platform use for dealers with annual volume <1MW.

Considering the rise in customer base, strong execution, strong backlog, and continued thrust towards increasing market share and profitability, as well as improving balance sheet, we give a “Buy” recommendation on the stock at the current market price of $25.00 per share, up by 7.76% on 8^th June 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Disclaimer 

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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