SunPower Is Offering Two for One Sale
Dec 9, 2019 by InvestorDestination Team
SunPower Corporation (NASDAQ: SPWR) is known for its high-efficiency, premium products. However, the company has been struggling to generate profit and positive free cash flow. For the last several years, the company is restructuring and trying to turnaround. Despite all its efforts, the company is not generating profit, but this year it is showing some signs of improvement. However, investors are not getting excited about this company.
| SunPower | First Solar | JinkoSolar | Sunrun | Viviant | Canadian Solar | |
|---|---|---|---|---|---|---|
| Revenue (in Millions) | $1,717 | $2,355 | $3,949 | $855 | $327 | $3,181 |
| Profit Margin | (8.3%) | (0.1%)/td> | 2.2% | 0.9% | (24.9%) | 6.8% |
| FCF % Sale | (38%) | (48%) | 2% | (9%) | (16%) | (3%) |
| Debt to Asset | 50% | 7% | 43% | 39% | 53% | 39% |
| Enterprise Value (in Millions) | 1,890 | 4,930 | 5,737 | 4,420 | 2,360 | 2,950 |
| Enterprise Value/Revenue | 1.1 | 2.1 | 1.5 | 5.2 | 7.2 | 0.9 |
In an attempt to unlock shareholders' value, the management has decided to split the company into two public-facing companies– one that keeps the name SunPower and the other Maxeon Solar Technologies. The ‘new’ SunPower will focus on downstream business, and Maxeon will focus on upstream business. TZS will invest 298M in Maxeon and own 29% of the company. Now Maxeon can focus on increasing performance series and higher efficiency Maxeon 5 production capacity and is planning to double its production capacity by 2021. The ‘new’ SunPower will focus on improving residential and commercial business.
The company is committed to strengthening its balance sheet, but it is not generating enough free cash flow to pay off its 400M convertible debt that is due in 2021. The company believes it can use cash from operations to repay approximately 50% of its 2021 debt and planning to raise the remaining balance in capital markets. Recently it issued 22M shares at 7/share and raised approximately 150M in cash. When a company wants to raise money in the equity market, it should do so when its stock is overvalued. It was not the best decision for SunPower to raise cash in the equity market now. However, considering its time table to split the company, it is safer to raise the fund now to pay off debt, which is due in 2021.
While the solar industry is here to stay, many factors, including change in government policies, cause the near-term demand fluctuation. Last year, California became the first state in the nation to pass a mandate that requires solar panels on newly built homes. As the home prices are skyrocketing, there is a new proposal to change that previous mandate. A new proposal from the Sacramento Municipal Utilities District, home builders, could choose to take credit for electricity generated by existing solar farms, instead of building houses with rooftop panels. If this proposal gets passed, it will negatively impact residential rooftop players such as SunPower. However, advancement in solar and storage technology is making residential solar more economical to homeowners, and there will be a long-term demand for residential rooftop solar.
It will be a bumpy ride. But if you can ignore the volatility, it is worth considering.
Disclaimer : InvestorDestination.com is not operated by a broker, a dealer, or a registered investment advisor. Under no circumstances does any information posted on investordestination.com represent a recommendation to buy or sell a security. In no event shall investordestination.com be liable to any visitor or third party for any damages of any kind arising out of the use of any content published or available on investordestination.com, or relating to the use of, or inability to use, investordestination.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security. The information on this site is in no way guaranteed for completeness, accuracy or in any other way.