A Solar Stock to Invest
June 03, 2021 by InvestorDestination Team
In the current bull market, investors are even excited about companies with no revenue or profit and offering hefty valuations. However, recently, Maxeon Solar Technologies, Ltd. (NASDAQ: MAXN) is not receiving investors’ exuberance.
Maxeon is a solar module producer. Recently it spun off from its parent company, SunPower. It has been in the business for more than 30 years and offers the most efficient solar panels. Solar players are continuously improving panel efficiency. For more than a decade, the company is maintaining its efficacy lead. Panel efficiency is just one of the factors. The company’s panels also have higher performance, lower degradation rate, and longer manufacturing warrant. Maxeon’s panels cost more compared to its competitors. However, its solar panels deliver more energy over a system’s lifetime.
The company has introduced lower-cost performance series (P Series) panels to compete against low-cost players in recent years.
The company is not profitable yet. It is not even generating positive gross profit. The part of it can be blamed on COVID-induced supply chain challenges, which are impacting all polysilicon solar players’ profitability. Apart from the industry-wide challenges, there are company-specific challenges that are negatively impacting its profitability. Its out-of-market polysilicon contract is negatively impacting its profitability. This contract will continue to impact its profitability until it expires in December 2022 negatively. The company is a small module player and lacks economies of scale.
The company’s management is taking a few steps to improve its profitability.
The company is upgrading its manufacturing facilities to produce the next generation products that are more profitable. The company is expanding its performance series capacity through a joint venture. It is also expanding its in-house production capacity.
The company can ship 67% of its joint venture production capacity to outside China. However, due to supply chain constraints, the company has paused its shipment. As supply challenges ease and the market becomes ready to absorb the higher input costs, the company will resume its shipping, positively impacting its top and bottom line.
Its high-performance IBC series panels are suitable for the residential and commercial market. The company is seeing a growing demand for its IBC panels in the DG market. It is gaining market share in the US and European DG markets.
In the US, it sells its IBC product through its parent company, SunPower. Now, the company is expanding its presence in the US large-scale market through its performance series panels. As we mentioned earlier, it manufactures its P series products through its joint venture in China. To combat the tariff, it will manufacture P series products in-house to sell into the US market.
It has a strong balance sheet; it is not generating positive cash flow yet. Recently it raised cash through the equity market to fund its capacity expansion.
Global desire to reduce carbon footprint will act as a catalyst for industry growth. Countries around the globe are pledging to reduce their carbon footprint. China has pledged to achieve peak carbon emission by 2030 and carbon neutrality by 2050. The economy of scale and industry innovations are helping to drive the cos. Solar archives sustainable growth in a country when it achieves grid parity. For example, in China, 2021 is the first year of the 14th five-year plan, and it is also the first year for the solar industry, except for the residential sector, to enter into the era of grid parity without subsidies.
In the US, the new administration policies will act as a catalyst. In 2021, in the US, the newly added solar installations are expected to exceed 20 gigawatts for the first time.
The long-term demand for solar is undeniable. The company has the best-performing panels in the industry and gaining market share in the DG market. It is expanding its production capacity without straining its balance sheet. As the supply chain challenges ease and its out-of-market contract expire, the company’s profitability will improve.
There will be a day when the sun will shine on Maxeon.
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