The SunPower Freak-Out

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Business media outlets have solar investors running for cover in the wake of SunPower’s revised earnings forecast.

San Jose California-based solar manufacturer SunPower is the second-largest panel producer in the US, so it is no surprise that the market responded negatively this week when company reps reported that it expects to lose as much as $175 million this year.  Early this summer, they announced that they expected to earn $50 million. Media outlets jumped on the catchphrase  “guidance bomb” to describe what appears to be

Their stock immediately tanked, taking the single biggest hit in seven years with a loss of 31% of its value. Bloomberg, Forbes and other business media outlets were quick to jump on the story. However, it seems that no one can decide if it is time to declare the entire solar industry in trouble, or if it might not be a great time to buy solar stocks.

As might be expected, SunPower was not the only company that took a hit after the announcement.  Other North American solar manufacturers also caught the fallout of the SunPower freak out. Canadian Solar Inc., the world’s second-biggest panel maker, slipped 8.9 percent to $13.16, the lowest since August 2013 and U.S. solar giant First Solar Inc., fell 7.2 percent to $38.66, the lowest since September 2013.

Company spokespeople cited the extension of a federal investment tax credit as one reason for the adjusted estimates.  Also, sunPower will close a Philippine panel assembly plant and transfer the equipment to Mexico, cutting 15 percent of the overall workforce, or 1,200 employees, in the process.SunpowerCeo

“We wanted to re-position supply closer to the end market,” Chief Executive Officer Tom Werner said in an interview after the company posted second-quarter earnings. “We’re in transition. We’ve been through this before.”

Forbes ran the headline “SunPower The Latest Victim In Solar Stock Death Spiral.”  Contributor Jim Collins lays it out like this: “One has to ask oneself:  does this mean that remaining solar stocks will be bid up in price as the market sees a scarcity of solar pure-plays or is this in reality a rational response by industry executives to worsening fundamentals and plunging share prices–a throwing in of the towel, if you will?   I can’t see how anyone could come up with the former answer instead of the latter, and the market is telling us that solar is dead as an equity play.  The death spiral is upon us.”

A slightly less hyperbolic analysis of the situation comes from Kumquat Research at Seeking Alpha. In an article entitled Sunpower:Buy on the Drop? Kumquat concludes: “Even at a $1.63 billion market cap, I don’t think buying shares in SPWR is a particularly wise decision. There are plenty of other solar companies out there, namely First Solar , that are coping with changing market conditions much more effectively and have better fundamentals. Yet at the same time, SPWR has already lost so much value that I don’t see selling the stock as a necessary decision at current price levels either. Obviously, it is up to each SPWR investor to conduct his or her own due diligence, but I think holding onto SPWR is the best decision in a very bad situation.

I rate SunPower a Hold on the drop.”

By the way, according to the author’s bio,”Kumquat Research is a college student and fund manager who has been investing for 4 years.” From the mouths of babes, as they say…

Another Seeking Alpha commentator, Giovanni DiMauro is looking at First Solar’s depressed numbers as a potential opportunity to make money. “First Solar has taken a beating over the last 5 months down 50%. Technically speaking the stock is oversold and due for a bounce. One would be wise to stay nimble in the space and look for panic entry points.”

The takeaway message from all of the kerfuffle over SunPower is that these are financial sector and banking problems, not solar problems. The drop in stock price has everything to do with financing, and nothing to do with technology. A slow year in American solar sales caused by last year’s speculation over the fate of tax credits does not affect the advances in efficiency, nor does the monopoly utility industry’s attempts to suppress the market ultimately mean that the solar revolution is over. That train has left the station, and now we are watching the market speculators figuring out how to make money off of a temporary downturn.

An interesting side note here is that Elon Musk’s SolarCity, which was last month’s problem child, seems to be chugging through the recent freak-out in relatively calm waters. It may be that the mad genius will come out a winner again, despite the critics. Musk’s long-term goal of integrating solar into a broader portfolio of energy products may prove to be a winning strategy.

 

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