The shares of solar energy companies SunPower (SPWR) and SolarEdge (SEDG) are tumbling after they both provided weaker than expected guidance last night. Analysts were mostly negative on SunPower's stock following its report, with several downgrading the shares to Hold or equivalent ratings. SunPower develops utility scale solar projects and solar modules, while SolarEdge develops solar inverters.
RESULTS: SunPower's second quarter results came in slightly above expectations, but the company provided Q3 revenue guidance, excluding some items, of $750M-$850M, versus the consensus outlook of $1.13B. Additionally, SunTrust cut its full-year adjusted revenue guidance to $3B-$3.2B from $3.2B-$3.4B. Furthermore, SunPower announced that it would lay off about 1,200 of its employees, representing 15% of its workforce. The company said that a number of its competitor were charging low prices, while the extension of America's key solar tax credit has lowered near-term demand for solar power plants in the U.S. Meanwhile, for its Q4, SolarEdge reported higher than expected profits but lower than expected revenue. It provided Q1 revenue guidance of $130M-$139M, versus the consensus outlook of $139.4M. SolarEdge also said its quarterly results were hurt by a slowdown in the U.S. residential solar market.
SUNPOWER DOWNGRADES: Oppenheimer analyst Colin Rusch downgraded SunPower to Perform from Outperform, saying near-term demand for its projects has declined as bidders seek to buy projects from SunEdison (SUNEQ), which has declared bankruptcy. The analyst thinks that SunPower's metrics should improve over the longer term, given its strong products and backing by French oil giant Total (TOT). However, he moved to the sidelines on the stock until the company's selling prices show "stability." Also downgrading the stock was Deutsche Bank's Vishai Shah. As reasons for the downgrade, the analyst cited the "challenging outlook" for the company's utility scale power plants in the U.S. in 2017 and the weakness of the overseas solar power plant market. Prices in the U.S. power plant market "remain challenging," while the profitability of SunPower's global power plant business is being hurt by unfavorable macro trends, the analyst stated. Overseas, power plant margins will probably remain "extremely low," predicted Shah. He lowered his rating on the shares to Hold from Buy and slashed his price target on the stock to $11 from $37. Credit Suisse and JPMorgan were among the other firms that downgraded SunPower. Bucking the trend, Bank of America Merrill Lynch analyst Krish Sankar acknowledged that SunPower's lowered fiscal 2016 guidance is disappointing, but he says that the company is continuing to gain share in the residential market. Moreover, the company is benefiting from its technology advantages and its backing by Total, while its pipeline remains strong, according to Sankar. The analyst reiterated a Buy rating on the shares, but he lowered his price target on the name to $25 from $31. U.S.
HEADWINDS SEEN AS TEMPORARY: SolarEdge believes that headwinds in the U.S. solar residential market will probably prove to be "largely temporary," noted Needham's Y. Edwin Mok. Moreover, the company's U.S. commercial and international markets should grow going forward, while demand for its HD-wave inverter should increase over the next year, Mok predicted. However, the analyst cut his price target on the shares to $28 from $36, as he conceded that the slowdown in the company's U.S. residential business was more acute than he had expected, though he kept a Buy rating on the shares.
OTHERS TO WATCH: Other publicly traded companies in the space include Canadian Solar (CSIQ), First Solar (FSLR), JA Solar (JASO), SolarCity (SCTY), SunEdison (SUNEQ), SunPower (SPWR), Trina Solar (TSL) and Yingli Green Energy (YGE).
PRICE ACTION: In late morning trading, SunPower tumbled 30% to $10.31, while SolarEdge gave back 11% to $16.55.
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