SunPower Earnings: Lowering Our Forecast Following Recent Guidance Cut

We lower our fair value estimate for no-moat SunPower SPWR to $10 from $13.50 following second-quarter earnings. The main driver of our reduced valuation is a reduction to our revenue forecast following the company’s recent guidance cut. We view SunPower shares as fairly valued. We see solar inverter companies as relatively better positioned to weather near-term volatility in the U.S. rooftop solar market.

Last week, SunPower issued a profit warning of its second quarter results and lowered its guidance for 2023 amidst a challenging rooftop solar market environment. The company noted demand in California has been weak following the NEM 3.0 regulatory change in April, but in line with its expectations. In contrast, the primary driver of its guidance reduction was non-California demand, which has been affected by higher interest rates, particularly in states with lower utility rates, such as Texas, Florida, and Arizona.

In response to a weakening demand environment, SunPower reduced spending in certain areas—namely product and digital initiatives—as it seeks to operate more efficiently. While SunPower has pulled back on its product investments, it continues to grow its financing arm, SunPower Financial, which signed a deal with ADT Solar to be the exclusive lease financing provider.

Our primary takeaway from SunPower’s results (as well as those of its peers) is the need for meaningful cost reductions to spur rooftop solar demand. We believe there is ample room to lower costs, which are severely bloated by global standards such as customer acquisition costs, and equipment pricing. In general, we view sales and installation companies, such as SunPower, as less well positioned to navigate a tightening margin environment compared with solar inverter companies, Enphase and SolarEdge, which generate superior margins.