SunPower Corp

SunPower Corp (NASDAQ: SPWR) is a vertically integrated solar module manufacturer and systems installer. The company's modules derive from crystalline silicon technology and possess the industry's highest conversion efficiencies.

Key highlights

• Shutting down the manufacturing plant:On 7th January 2021, the Company announced that it would be closing its solar panel manufacturing plant in Hillsboro, Ore. Also, in August 2020, the group completed the spin-off of Maxeon Solar Technologies, Ltd. The spin-off encompassed international panel manufacturing and associated sales, which is now run by Maxeon. Following the split, the group is focused on innovative solar and battery storage system sales and services for customers in the U.S. and Canada and developing downstream energy services products like energy management software.

• Guidance:The management has shared fourth quarter and fiscal year 2020 guidance, where they expect to clock a revenue of USD 330 to USD370 million, Adjusted EBITDA to be in the range of USD26 million to USD36 million and net income of USD11 million to USD21 million in Q4 2020, For the fiscal year 2020, the revenue will be of USD1.12 billion to USD1.16 billion. Adjusted EBITDA to be in the range of USD30 million to USD40 million along with a net income of USD190 million to USD200 million. 

Financial overview of Q3 2020 (In thousands of USD)

Source: Company

• In Q3 2020 the Company reported consolidated revenue of USD 274.8 million, compared to USD 286 million in the previous corresponding period.
• The Company posted an operating loss of USD 2 million in the reported quarter against a loss of USD 19.8 million in Q3 2019.
• On the back of higher other income reported by the Company in Q3 2020, it posted a net income of USD 45 million, against a net loss of USD 19.2 million in the previous corresponding period. 

Risks associated with investment

The COVID-19 pandemic had adversely impacted the company’s business, operations, financial performance, and the operations and financial performance of many of its suppliers, dealers, and customers. A further outbreak of the pandemic may harm its operations again. Furthermore, they are highly dependent on Maxeon Solar as a sole-source supplier for certain critical components and products, including solar cells and modules. Any supply interruption or delay could adversely affect their business.

Valuation Methodology (Illustrative): Price to Earnings

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The company is a leading solar energy company that delivers complete solar solutions to customers primarily in the United States and Canada through various hardware, software, and financing options, and "Smart Energy" solutions. We have valued the stock using price to earnings based relative valuation method and arrived at a target price offering double digit downside (in % terms) potential.

Based on the aforementioned facts, we have given an "Expensive" rating at the closing price of USD 31.59 on January 13, 2021. We have considered NRG Energy Inc, Canadian Solar Inc, First Solar Inc, etc. as the peer group. 

Source: Refinitiv (Thomson Reuters)

Atlantica Sustainable Infrastructure PLC

Atlantica Sustainable Infrastructure PLC (NASDAQ: AY) is a sustainable infrastructure company which owns and manages renewable energy, efficient natural gas, transmission and transportation infrastructures and water assets.

Key Updates:

• Acquisition of 20MW solar plant: Recently, the company reported that it would acquire a 20MW solar plant with a 15-year PPA in place in Colombia from a subsidiary of Algonquin Power & Utilities Corp. The above acquisition is expected at a price consideration of USS 20 million, while the finalization of the deal is expected in mid-2021.
• Ample Liquidity: The company reported liquidity of ~USD 600 million, which seems to be sufficient to withstand the current pandemic and would serve its working capital requirements. Moreover, the company has no significant maturity of corporate debt till 2025, which augurs well for the liquidity preservation.         

Source: Company Presentation

• Stable Business-model depicts sustainable operations: The company’s business model is related to the basic needs of the consumer, and hence is immune to economic cycles. Moreover, the group has a diversified revenue-base in terms of operations and geography, which is a key positive. The company derives its revenue from 100% Contracted or regulated revenues.

          Source: Company Presentations

Q3FY20 Financial Highlights:

• AY announced its quarterly results, wherein the company posted revenue of USD 302.987 million, reflecting a growth of 3.3% on y-o-y basis.
• Operating profit stood at USD 128.920 million, lower than USD 159.780 million in Q3FY19. The decline was primarily attributable to higher depreciation, amortization, and impairment charges (USD 108.093 million versus USD 84.826 million in pcp), and increase in Employee benefit expenses (USD 13.097 million versus USD 9.500 million in pcp)
• Net profit stood at USD 84.359 million, significantly higher than USD 45.633 million in pcp, supported by a financial income (USD 59.778 million versus USD 0.153 million in pcp).
• The group reported cash and cash equivalents of USD 788.895 million, while total assets stood at USD 9,831.113 million.

          Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Production in Spain stood lower during 9MFY20, as compared to the same period in FY19 due to lower solar radiation in the first half of FY20. Continuation of the above trend would dampen the upcoming performance of the company in the foreseeable future.

Valuation Methodology: Price/Earnings Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation:

With the acquisition of 20MW solar plant in Colombo, we expect the company would mark its presence across the new market, which would support the company’s upcoming business prospects. With growing traction towards greener energy, we believe, the company is well-placed to report improved performance in the foreseeable future. Due to a resilient business model, the stock of AY soared ~90% in the last nine months, and currently trading near the upper band of its 52-weeks trading range of USD 45.94 and USD 17.73, respectively. We have valued the stock using the P/E based relative valuation approach and arrived at a target price, which suggests a high double-digit downside potential (in % terms). For the said purpose, we have considered peers like Edison International, Nextera Energy Inc etc. Hence, considering the aforesaid facts, we recommend an ‘Expensive’ rating on the stock at the closing market price of CAD 45.29 on January 13, 2021.

AY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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