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SunPower: Plans to Restate Financials; Lowering Our Fair Value Estimate to $5.50

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SunPower Corp
(SPWR)

We lower our fair value estimate for no-moat SunPower SPWR to $5.50 per share from $10 following the company’s announcement of a material weakness in internal controls and plans to restate financials. Our reduced valuation is not directly related to the company’s disclosure and relates to updating our long-term financial model to assume lower market share and lower gross margins.

On Oct. 24, SunPower filed an 8-K disclosing a material weakness in internal controls and plans to restate financial results for its most recent 10-K and two most recent 10-Qs. The issue relates to the value of consignment inventory of microinverter components at certain third-party locations being overstated in the range of approximately $16 million-$20 million, resulting in the associated cost of revenue being understated. We look for more information on SunPower’s actions to correct the material weakness in internal controls and its third-quarter financial results when it reports earnings on Nov. 1.

The residential solar industry has had a rough 2023, as high interest rates and California’s NEM 3.0 policy change have significantly slowed growth. We expect a more competitive environment as a result and thus reduce our market share and gross margin estimates for SunPower, which operates in the highly competitive sales and installation portion of the residential solar value chain. For investors looking for opportunities amid the rooftop solar stock selloff, we favor solar inverter companies (Enphase and SolarEdge) given their track record of profitability and sound balance sheets.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Brett Castelli

Equity Analyst
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Brett Castelli is an equity analyst, energy and utilities, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. His coverage focuses on clean energy companies across renewables and emerging technologies.

Before joining Morningstar in 2021, Castelli spent more than eight years in various analyst roles for TortoiseEcofin, a boutique asset manager. His coverage focused on North America and included companies within traditional energy, electric utilities, and renewables. Additionally, he assisted with the firm's environmental, social, and governance efforts and played an important role in integrating ESG into the investment process. Castelli spent a year at the firm's London office following an acquisition.

Castelli holds a bachelor's degree in finance from the University of Missouri's Trulaske College of Business. He also holds the Chartered Financial Analyst® designation.

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