October 17, 2008, 10:07 am
SunPower Unplugged: Merrill, Citi Downgrade
Posted by Eric Savitz
SunPower (SPWRA, SPWRB) shares are coming under pressure this morning following downgrades this morning by analysts at Merrill Lynch and Citigroup. The moves come one day after the company reported generally well-received Q3 profits.
Merrill Lynch solar analyst Mark Heller cut his rating on the shares to Neutral from Buy, and cut his price target to $55 from $95, citing “demand concerns in the U.S. residential solar market.” Heller writes today that SunPower remains one of the best positioned solar companies, but that “it’s difficult to ignore the current macroeconomic environment and the pressures it will put on consumer spending on capital intensive projects like solar.”
Heller says the Congressional passage of an extension to the solar investment tax credit was a major milestone for the solar industry, but that he nonetheless is “increasingly cautious” the near-term trends in residential solar “given weakening economic and employment trends, falling home prices and tightening credit.” He notes that the company gets about a third of its business from the residential solar market, and has about 25% exposure to the U.S. market.
Likewise, Citigroup’s Timothy Arcuri this morning cut his rating on the stock to Sell from Hold, chopping his price target from $55 to $30 - well below the price even after the drop in the stock this morning. While the Street has been negative on solar stocks generally of late, he says this is “100% stock-specific call.”
“The bottom line here is that we think a big miss is coming in Q1 as classic signs of inventory risk are developing in its components biz, while Q4 should represent a multi-year peak in its margin structure,” he writes. “With respect to liquidity, it has access to cheap money through a term-loan but will continue to skate on thin ice as looks unlikely to generate [free cash flow] through 2010.”
He raised his 2008 EPS estimate to $2.30 from $2.19, but cuts 2009 to $2.73 from $3.10, and lowers 2010 to $3.35 from $3.86.
SunPower Class A is down $1.63, or 3.2%, to $49.36; the Class B shares are down 43 cents, or 1%, to $43.59.
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