SunPower Is Ready To Power Up Triple-Digit Earnings Gains

Key Points

• Solar stocks like SunPower are set to benefit from tax credits attached to the Inflation Reduction Act.
• Analysts see triple-digit earnings gains next year.
• Will the current sideways chart pattern lead to further price gains? 

The sun is shining on solar stocks, such as SunPower NASDAQ: SPWR following the passage of the Inflation Reduction Act. During a market downturn, it’s critical to pay attention to companies showing fundamental and technical strength, as these could be among the next big winners in a bull rally. 

That’s where solar stocks come in.

Among other things, the bill offers tax credits and rebates to individuals and businesses that install solar energy gear. 

SunPower is not the only stock from its industry outperforming the broader market. Large-cap names like Enphase Energy NASDAQ: ENPH and First Solar NASDAQ: FSLR also show unusual strength.

SunPower is a mid-cap and is part of the S&P 400 Mid-Cap index, tracked by the SPDR S&P MIDCAP 400 ETF Trust NYSEARCA: MDY. 

The company manufactures photovoltaic solar systems, as well as battery-storage gear, mainly for home use. 

The stock advanced nearly 29% in July as big investors anticipated passage of the Inflation Reduction Act. It bounced nearly 18% higher in August as the Act was passed, and is up 3% so far in September, holding up much better than its index, which is down nearly 10% for the month. 

Rebounding After Losses

The company, which went public in 2005, limped along with losses from 2016 through 2020. That turned around last year, with net income of $0.21 per share. Analysts expect earnings to come in slightly lower this year, at $0.19 per share, but posting a strong rebound next year, to $0.64 per share, on expected sales due to the Inflation Reduction Act.

That would be a whopping gain of 237%. 

Analysts have a “hold” rating on the stock with a price target of $22.20, which would mark a downside of 9.72%, according to MarketBeat data.

So what’s going on there, given that earnings are forecast to grow at a triple-digit rate?

First, we’re in a turbulent market that is seeing even strong earners get whipsawed on a moment’s notice, along with the broader market. Second, analysts are divided about some aspects of the company’s business model that relies on direct sales, rather than a subscription model that generates recurring revenue.

But overall, the trend seems headed in the right direction. When SunPower delivered its second-quarter earnings report early last month, the company said it added more than 19,000 customers, more than double the number from a year earlier. 

In the earnings conference call, CEO Peter Faricy attributed the gain to a boom in new home construction, many of which are using green technologies to appeal to younger buyers. Of course, incentives that existed before the Inflation Reduction Act also play a role. 

In the quarter, SunPower’s revenue climbed 60% to $417.8 million. Adjusted earnings came in at $0.03 per share, topping views of $0.05 per share, according to MarketBeat earnings data. 

On a non-adjusted basis, the company beat views by a penny. 

SunPower’s chart shows an essentially sideways pattern since mid-August. In a formation that began in April, the stock undercut its previous structure low, which can be a good start for a new rebound when the market eventually turns higher. 

Government Actions That Actually Help Stocks? 

Regulatory and governmental changes are certainly a driver of price growth in certain industries, whether or not some investors approve. One of the great lessons of investing is: Set opinions aside, whether pro or con, and watch what the stock and its industry are doing. 

If you purchase any stock, including SunPower or any other solar name, during a volatile market, be aware that even those with great prospects can get swept lower in a heartbeat. On the one hand, there is certainly an opportunity to scoop up shares at lower valuations right now. On the other, use caution about trying to catch the proverbial “falling knife.”