2 solar stocks with bright prospects for 2024

While the oil/energy sector posted modest gains in 2023, solar energy stocks took a hit. The Invesco Solar ETF NYSEARCA: TANNING it is down 38.53% over the last 12 months and 12% year to date (YTD). While solar trackers have been exceptionally strong, solar systems and panels are starting to show some strength as of February 2024, as TAN has rebounded 3.6% over the past month. Investors looking for a contrarian bet may consider taking a look at these two sunny stocks.

SunPower Co.

SunPower Co. NASDAQ: SPWR is a leading manufacturer of photovoltaic solar panels and solar power systems. Their products are aimed at both the commercial and residential markets, providing sustainable and renewable solar energy options. Their Maxeon solar cells use Interdigitated back contact (IBC) technology, which offers higher energy yield, efficiency and reliability than conventional panels.

Instead of front-facing energy conversion, the IBC has back-contact energy conversion that allows the entire front of the cell to absorb sunlight, converting more photons into energy without any shading by the metal ribbons. Maxeon cells are the most efficient panels in the industry, proven to be 20% more efficient than PERC panels.

Sparkling results

On February 15, 2024, SunPower reported fourth-quarter 2023 losses of 51 cents, missing consensus estimates by 25 cents. Revenue fell 28.3% year over year to $356.9 million, in line with consensus estimates. The company added 16,000 new customers in the quarter. New home installations grew 19% on a sequential basis.

The company had an order book of 52,100, of which 15,100 were in the Retrofit homes channel and 37,000 in the New Homes channel. New Homes’ backlog represents 12 to 24 months of installations.

Path to improving profitability and cash flow in 2024

The company is targeting positive cash flow in the second half of 2024 despite uncertain demand. SunPower has identified $100 million in costs of goods sold (COGS) and operating expenses (Opex) that will be on track by mid-year. This includes the consolidation of the SunPower Direct site. Lower logistics costs and reduced overheads.

SunPower is shifting to lower-cost suppliers as its old panel supply contract expires in February 2024. The company expects a 30% to 50% drop in panel costs under the new agreements. The company plans to roll out a new third-party energy storage product in the second quarter of 2024 with up to 50% cost reductions compared to the legacy SunVault program.

The company expects a 20% reduction in racking costs after switching to new suppliers and expects to realize a 37% reduction in overall equipment expenses. Check the heat map of the sector on MarketBeat.

Additional financing

The company has raised $175 million in new equity financing from Global Infrastructures Partners and TotalEnergies. This includes $80 million in new investments, $45 million in legacy bridge financing and $50 to borrow upon satisfaction of certain terms. SunPower claims to be the highest-rated solar company in the United States, with more than 15,400 five-star customer reviews.

Forecast 2024

SunPower is focused on profitability and excess gross margin growth in 2024. Adjusted gross margin is expected to improve from 13.6% in 2023 to 17% to 19% in 2024 and above 20% in 2025. The company expects a positive free cash flow in the second half of 2024 and full year 2025. GAP net losses are expected to range from $160 million to $80 million versus $247 million in 2023. Declining interest rates in 2024 are a tailwind .

SunPower CEO Peter Faricy commented: “2023 has been one of the most challenging years this industry has endured, and we know the past year has been as frustrating for you as it has been for us. We have taken concrete actions designed to position the company for success in 2024 and beyond, even as consumer demand declines.”

Analysts downgrade

Guggenheim downgraded shares of SunPower to Sell from Neutral with a $1 price target. While the $175 million financing addressed short-term liquidity issues, it was dilutive and the cost to shareholders is much more significant than the markets realize due to the 41.8 million shares of warrants issued to Sol Holding.

Analyst Joseph Osha commented: “We fail to see how SPWR generates cash on a more sustainable basis and with cutting operating expenses and preserving cash as a primary focus, we fail to see how the company will avoid losing market share in 2024”.

Bank of America maintained its Underperform rating but cut its price target from $3.50 to $2.50, citing potential dilution concerns.

SunPower analyst ratings and price targets I’m on MarketBeat. Sibling and competing SunPower stocks can be found with MarketBeat Stock Screener.

Daily breakdown of the ascending triangle

The daily candlestick chart on SPWR illustrates an ascending triangle pattern. The ascending trend line began at $3.03 on February 5, 2024. The stock peaked at the flat upper trend line at $5.20 before falling back below support at the 50-period daily moving average (MA) at $4.01. SPWR broke below the ascending trend line, testing the weekly market structure low (MSL) buy trigger at $3.65. The daily relative strength index is falling through the 50 band. Pullback support levels are at $3.03, $2.74, $2.51, and $2.15.

Sunrun Inc.

Sunrun Inc. NASDAQ: RUN is a leading provider of solar panels and storage solutions for residential markets, pioneering the Solar-as-a-Service (SaaS) model. It has transitioned to a full-service business model focused on moving beyond just rooftop solar panels. The company has expanded into home energy management solutions, virtual power plants, and energy storage systems such as its Brightbox battery systems, which are comparable to Tesla Inc. NASDAQ:TSLA Powerwall Systems. It caters to customers primarily in California, New York and Massachusetts. Obtain AI-powered insights on MarketBeat.

They offer complete design, installation and monitoring of solar systems tailored to each customer’s home. Sunrun uses machine learning and data analytics to optimize system design and operations. Rather than direct sales, they leverage partnerships with major homebuilders and associations like the National Association of Home Builders and retailers like Costco Wholesale Co. NASDAQ: COST, resulting in low customer acquisition costs. The company offers low-price leases on its systems.

The glass was half full

On November 11, 2023, Sunrun reported GAAP revenues of $563.2 million, down 11% year-over-year. Revenue from customer agreements and incentives increased 17% year over year. Sales of solar energy products and systems fell 32% to $114 million. The company took a $1.2 billion non-cash impairment charge related to its acquisition of Vivint Solar in October 2020, or $5.32 per share, bringing a net loss to $4.92 per share. Non-GAAP net income, excluding goodwill impairment, was 40 cents per share, or $88.5 million.

Mary Powell, CEO of Sunrun, commented: “We are rapidly and fundamentally transforming ourselves into a storage-centric company to deliver the most consumer-friendly product, expand our margins and lay the foundation for greater value streams from our growing fleet of networked storage systems”. Powell concluded: “We have taken deliberate go-to-market optimization actions, including repositioning our geographic mix, route mix and product mix as we transition to a warehousing-first company.” .

Sunrun analyst ratings and price targets I’m on MarketBeat. Sunrun reports its fourth quarter 2023 earnings on February 21, 2024.

Before you consider SunPower, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and SunPower wasn’t on the list.

While SunPower currently has a “Reduce” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here