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For SunPower, 2017 Hinges On Residential Business

Manikandan Raman

Credit Suisse maintains its Neutral rating on SunPower Corporation (NASDAQ: SPWR), saying the company’s 2017 profitability could be worse than expected and depends heavily on the residential market.

SunPower maintains its FY 2017 non-GAAP revenue outlook of $2.1 billion–$2.6 billion versus consensus of $2.4 billion. Deployment guidance of 1.3–1.6 GW was also reiterated.

“Expectations for ‘positive‘ annual EBITDA versus our street low prior estimate of $210 million and consensus of $234 million suggest to us that profitability forecasts are set to come down sharply,” analyst Andrew Hughes wrote in a note.

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Hughes noted that more than 90 percent of commercial backlog is booked and the power plant backlog totals 1GW, suggesting that shipment range relies heavily on residential market growth.

The Importances Of Residentials

SunPower’s fourth-quarter residential deployments rose 13 percent, with the company gaining continued market share in the United States. However, market growth rates are slowing due to regulatory pressure and U.S. tax uncertainty.

“We forecast 22 percent US residential demand growth in 2017 vs 34 percent in 2016 and 75 percent in 2015. Our 355 MW 2017 residential deployment estimate implies SPWR's market share will increase from <10 percent in 2016 to 10.4 percent in 2017,” Hughes elaborated.

That said, on the tax reform front, the analyst believes SunPower is disadvantaged versus First Solar, Inc. (NASDAQ: FSLR) due to lack of U.S. manufacturing and high leverage.

Also, Hughes cut his target price to $8 from $9 on a weaker EBITDA outlook.

At last check, shares of SunPower had fallen 5.56 percent at $6.85.

Latest Ratings for FSLR

Date Firm Action From To
Nov 2016 Macquarie Downgrades Outperform Neutral
Nov 2016 Barclays Maintains Overweight
Nov 2016 UBS Downgrades Neutral Sell

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