Why Goldman Sachs Recommends This Solar Company as Other Analysts Say Sell


One interesting development in the stock markets that’s been playing out over the past couple of days has been concerning one of the top solar panel companies in America.

SunPower (NASDAQ: SPWR) wound up receiving a recommendation from Goldman Sachs recently, which saw it’s share prices spike by 23 percent on Tuesday in addition to further increase on Wednesday.

However, just 24 hours later, rival analysts pulled back their own recommendations on the stock in a sudden move, warning that the stock could become overpriced if it continues to rise.

SunPower is one of the major manufacturers and installers of solar panel modules in the country. What made the company particularly attractive to Goldman Sachs was the fact that it’s among the best companies positioned to benefit from a new California law that requires all new homes that are three stories or less to have solar panels. SunPower has over 50 percent market share in the new-home solar installation sector in California.

Brian Lee, an analyst at Goldman Sachs, used this reason to justify upgrading SunPower’s stock, raising his target price from $6 to $11. In response, shares of the solar company jumped by over 23 percent. He also issued a number of other “buy “recommendations in the solar sector, solidifying his stance that the industry at large had plenty of room to grow in the coming months and years.

“We are incrementally positive on US residential solar stocks and see a number of tactically attractive buying opportunities ahead of 2H19 volume tailwinds and amidst recent signs of ongoing strength in the financing environment,” Lee wrote in Tuesday’s note.

However, after Tuesday’s gains that followed through on Wednesday, other analysts ended up withdrawing their own recommendations of the stock, thinking it had shot up to high and that an $11 target price was far too high. Specifically, they cite a number of risks in the company, the first of which is its valuation, trading at 12.2 times its enterprise value to 2020 earnings.

This is 8 percent higher than its rivals. Additionally, analysts also cite the fact that federal tax subsidies will begin to decline next year, making it more difficult for consumers to buy solar panels as they won’t have these subsidies reducing prices.

Analysts Pavel Molchanov from Raymond James as well as analyst Ben Kallo from Baird all cut back on their recommendations, downgrading the stock from an equivalent “buy” rating to a “hold” specifically for these above reasons, while suggesting that the stock should be sold if it gets too high in price.

Despite this, Goldman Sachs remains optimistic that the solar company will still surge. Only time will tell whether this is correct.

SunPower Company Profile

SunPower Corp is a vertically integrated solar module manufacturer and systems installer. The company’s modules derive from crystalline silicon technology and possess the industry’s highest conversion efficiencies (the percentage of sunlight that is converted into electricity). French oil giant Total is now SunPower’s majority shareholder.

The operatinig business segments of the company are SunPower Energy Services and SunPower Technologies.. The maximum revenue of the company comes from SunPower Energy Services Segment, which includes sales of solar energy solutions in the North America region, and direct sales of turn-key engineering, procurement and construction services. – Warrior Trading News