SunPower Is Down By Over 70% This Year, But Risk Of Insolvency Is Low
SunPower (NASDAQ:SPWR), the second largest U.S. solar panel manufacturer, has seen its stock price plummet by about 70% this year. The decline has been largely driven by the firm’s poor utility project visibility for 2017 (only one 111 MW project slated for completion, versus 575 MW this year) as well as weakening demand and pricing. While the magnitude of the sell-off and SunPower’s sizable debt load might cause concerns that SunPower could be headed towards bankruptcy, much like behemoths SunEdison and Suntech Power, we believe that such a scenario is highly unlikely at the moment. Below we outline a few reasons for that.
While SunPower’s total debt stands at about $2 billion, a major chunk ($871 million) of this is related to non-recourse financing for solar power projects. These liabilities are directly linked to projects that the firm is developing, and lenders do not have recourse to the general assets of the company for repayment. Moreover, SunPower intends to sell many of these projects (such as Henrietta, Boulder, Rio Bravo) within the next few quarters, and it’s possible that the firm will use these funds to reduce its debt load.
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Although 2017 is expected to be a weak year from a free cash flow standpoint, SunPower doesn’t have any sizable debt maturities due during the year. The firm’s next big payment comes in June 2018, when its $299 million in 0.75% debentures are due. However, SunPower should be in a position to fund this payment, as solar demand from the U.S. is likely to pick up by then, as developers take advantage of the full 30% tax credit which is set to decline in 2019. The firm should also begin generating cash flows from the roughly 800 MW of projects it has lined up for completion in Latin America between 2017 and 2019.
Additionally, SunPower has a relatively comfortable cushion of about $590 million in cash and cash equivalents, which should allow it to fund its operations in the near-term. The firm has been proactive about streamlining its manufacturing operations by altering its production mix, while closing higher cost facilities and carrying out headcount reductions. The firm’s parent company Total S.A., which holds 66% stake, should provide a backstop if the firm requires further liquidity in the event that the solar markets don’t pick up within the next two years or so. Overall, we believe that the concerns about SunPower are somewhat overblown, on account of the firm’s strong technology position and its exposure to the rooftop solar market, which could provide some near-term revenue stability.
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