As the world continues to evaluate and grapple with the consequences of climate change, governments worldwide are starting to take serious measures to hit reduced emission targets. Renewable energy stocks dominated the market last year with increased awareness of their potential to drive change towards a sustainable energy future. The optimism in the renewable energy space is expected to continue this year and beyond thanks to the favorable policies being undertaken by governments worldwide.
The push toward green electric grids is expected to be a key performance driver for companies in the solar energy space. The United States’ Energy Information Administration (EIA) forecasts that 15 GW of solar photovoltaic (PV) generating capacity in the electric power sector will be added in 2021, with an additional 12 GW forecast for 2022. And in part because the cost of storing solar energy have fallen dramatically over the past few years, investors have grown increasingly interested in the sector. This is evidenced by Invesco Solar ETF’s (TAN) 242% returns over the past year.
While several companies are now engaged in the solar energy space, many are still unprofitable. The stocks of most companies in the solar energy business are currently trading at high valuations, but those possessing weak financials may well witness a pullback in the near term despite the industry’s overall healthy prospects. We believe Sunrun Inc. (RUN), SunPower Corporation (SPWR), and Sunworks Inc. (SUNW) are three stocks that could witness corrections in the near term and may fail to rebound quickly. So, it’s wise to avoid these stocks for now.
Sunrun Inc. (RUN)
Headquartered in San Francisco, RUN pioneered residential solar service. The company is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy systems in the U.S. With more than 500,000 customers, RUN markets and sells its products through a direct-to-consumer approach across online, retail, mass media, digital media, canvassing, field marketing, and referral channels, as well as through its partner network.
RUN is expected to release its fourth quarter 2020 earnings report after the market closes on February 25. For the third quarter (ended September 30, 2020) RUN’s top line decreased 2.7% year-over-year to $209.76 million. Its revenue from customer agreements and incentives increased slightly year-over-year, but its revenue from solar energy systems and product sales decreased more than 20% year-over-year. The company’s net income increased 29.2% year-over-year to $37.45 million, yielding EPS of $0.28.
Analysts expect the company’s revenue to increase 58.3% for the quarter ending March 31, 2021 and 55.5% in fiscal 2021. However, RUN’s earnings surprise history is not impressive; the company missed consensus EPS estimates in three of the trailing four quarters. Also, its EPS is expected to decrease 57.1% for the fiscal year ended 2020.
On January 26, RUN priced $350 million of 0% convertible senior notes, due 2026 in a private placement to qualified institutional buyers. In November, the company contracted with one of the largest electric utilities in the United States, Southern California Edison (SCE), to increase grid resilience and lower power costs. Despite these developments, the RUN’s stock has gained only 8.7% so far this year, to close yesterday’s trading session at $75.40. Also, the stock has lost 21.9% over the past month.
RUN’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which equates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
RUN also has a grade of F for Value and Quality. In total, we rate RUN on eight different levels. Beyond what I have stated above, RUN is also given grades for Growth, Momentum, Stability and Sentiment. Get all of RUN’s ratings here.
RUN is currently ranked #17 in the 17-stock Solar industry.
SunPower Corporation (SPWR)
A provider of distributed generation storage and energy services, SPWR offers solar + storage solutions. Based in San Jose, California, SPWR has offices in North America, Europe, Australia, Africa and Asia. It designs all-in-one residential and commercial solutions backed by personal customer service and the industry’s most comprehensive warranty.
SPWR is expected to release its fourth-quarter and fiscal year 2020 financial results on February 17. The company’s total revenue has decreased 3.9% year-over-year to $274.81 million for the third quarter ended September 27, 2020. Its revenue from Solar power systems, components, and other segments decreased 3.5% year-over-year and its revenue from residential leasing decreased 63.6% year-over-year to $1.28 million. And even though its net income increased 130.3% sequentially to $44.63 million, its gross profit decreased 18.4% year-over-year to $37.14 million.
Analysts expect the company’s revenue to decrease 41.4% for the about to be reported quarter (ended December 31, 2020) and 27.6% for the quarter ending March 31, 2021. Also, SPWR’s EPS is expected to decline 41.4% for the fiscal 2020 ended December 31, 2020 and at a rate of 35.4% per annum over the next five years. The stock has gained 54.8% over the past month to close yesterday’s trading session at $45.35. However, the stock is expected to hit $24.12 soon and has downside potential of 44.6%.
SPWR launched its new mySunPower app on February 3, which is expected to be available for download on February 16 on the Apple App Store. The app is designed to help homeowners review and manage their energy generation, consumption, and battery storage settings from a mobile device.
Last month, SPWR announced its plans to launch SunPower Residential Installation (SPRI) in seven new markets across six states by the end of the second quarter of 2021. However, in early January, SPWR announced that it will close SunPower Manufacturing Oregon, LLC, its solar panel manufacturing plant in Hillsboro, Ore.
SPWR’s poor prospects are apparent in its POWR Ratings. The stock has an overall rating of D, equating to Sell in our proprietary rating system. SPWR has a grade of F for Stability and D for Value, Sentiment and Quality.
Click here to see the additional POWR Ratings for SPWR (Growth and Momentum).
The stock is ranked #12 in the same industry.
Sunworks Inc. (SUNW)
SUNW has been in business for more than three decades and is a premier provider of high-performance solar power systems. The company provides photovoltaic (PV) based power systems for the residential, commercial and agricultural markets in California and Nevada. The company’s commercial installations include office buildings, manufacturing plants, warehouses and agricultural facilities, such as farms, wineries and dairies.
SUNW’s total revenue has decreased 58.4% year-over-year to $7.30 million for the third quarter ended September 30, 2020. The company’s gross profit has also decreased 58.2% year-over-year to $1.25 million. It reported a net loss of $2.85 million and loss per share was $0.17. Analysts expect the company’s revenue to decrease 8.1% for the quarter ended December 31, 2020. Its EPS is expected to increase at a rate of only 10% per annum over the next five years. Also, the company missed the Street’s EPS estimates in all four of the trailing four quarters.
In January, SUNW appointed Gaylon Morris as its new CEO. However, on November 12, the company announced that in its proposed merger with The Peck Company Holdings, Inc., (PECK), had failed to secure stockholder approval. The company’s possible breaches of fiduciary duties and other violations of law related to the proposed merger were being investigated by Rigrodsky & Long, P.A.
Over the past year, SUNW’s stock has rallied 2224.4% to close yesterday’s trading session at $20.92. However, the stock is currently trading 28.8% below its 52-week high of $29.37, which it hit on January 25. Moreover, the stock is expected to hit $0.8 in the near term indicating downside potential of 96.2%.
It is no surprise that SUNW has an overall rating of D, which equates to Sell in our POWR Ratings system. The stock has a grade of F for Value and Stability and D for Sentiment.
We have also given SUNW grades for Growth, Momentum and Quality. Get all SUNW’s ratings here.
The stock is ranked #11 in the same industry.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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RUN shares were trading at $77.10 per share on Tuesday afternoon, up $1.70 (+2.25%). Year-to-date, RUN has gained 11.13%, versus a 4.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More…
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