SunPower Corp

SPWR Details

SunPower Corp (NYSE: SPWR) is engaged in designing and manufacturing solar panels and systems for all-in-one residential and commercial solutions.

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

Revenue Increased to $305.8 million: The company’s non-GAAP revenue increased to $305.8 million in Q1FY21 from $295.7 million in Q1FY20 on the back of strong execution leading to positive contributions from both C&I Solutions and Residential Light Commercial with revenue from C&I Solutions business increasing by 23%.

Healthy Improvement in Gross Margin:  Driven by better execution, its gross margin improved to 18.7% from 12.1% in the PCP. Further, it posted a non-GAAP net income of $9.3 million in Q1FY21 compared to the loss of $15.1 million in Q1FY20. Besides, the company has generated positive cash flow at the business unit level, and it has managed to repay its 8.5% CEDA loan early in April.

Financial Snapshot (Source: Company Reports)

Recent Update

SunPower and Woodside Homes Join Hands:  As per the market update of 14 July 2021, Sunpower and Woodside have entered into an agreement to provide SunPower® solar and SunVault™ battery storage systems to owners and buyers across its Northern California communities in response to soaring demand for sustainable and reliable energy. SunPower enjoys the benefit of being Woodside Homes' exclusive solar and storage partner in the region.

Outlook

SPWR forecasts attaining GAAP revenue between $295 to $345 million in Q2FY21 with MW recognized between 120 MW to 150 MW and adjusted EBITDA in the range of $16 to $27 million.

Driven by sustained confidence in its business, the company expects to achieve revenue and MW recognized growth of around 35% and 25%, respectively for 2021. Additionally, the company anticipates achieving adjusted EBITDA growth of over 40% in 2022 due to robust industry tailwinds, sustained federal policy backing, and accelerated demand for its residential and commercial storage solutions.

In a move to further de-lever its balance sheet, the company has retired its 2021 convertible bond. The balance sheet now provides more flexibility to swiftly exploit new growth opportunities.

The company will release its Q2FY21 results on August 3, 2021.

Key Risk

The company’s business operations would get adversely affected by changes in international trade policies, tariffs, or trade disputes. It relies on sustained availability of third-party financing arrangements for its projects to deliver its growth strategies. Further, an increase in the global supply of solar cells and panels, as well as intense competition may hurt its product prices.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock declined by ~21.02% in 1 month and by ~13.18% in 3 months. It has made a 52-week low and high of $5.9745 and $57.5199, respectively.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a premium to EV/Sales Multiple (NTM) (Peer Average) considering the sustained strong demand for its industry-leading solar and storage solutions in both its residential and commercial markets, momentum in bookings, and strong balance sheet with a reduction in net debt from the prior year.

Considering the aforementioned factors along with its accelerating customers base, strong execution, robust pipeline and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $24.23 per share, up by 4.85% on 28^th July 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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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