Morgan Stanley Shows Concern SunPower Is 'Less Insulated From Industry Challenges Than Expected'

SunPower Corporation SPWR has announced significant cuts to its 2016 and 2017 guidance, citing new issues plaguing its Power Plant segment.

Morgan Stanley’s Stephen C. Byrd downgraded the rating on the company from Overweight to Equal-weight, while lowering the price target from $27 to $12.

Less Insulated Than Expected

“While we saw significant solar industry challenges ahead, we thought SunPower was favorably positioned. The company's revised outlook for severe weakness in the Power Plant business has caused us to reconsider this view, and we now see a more limited ability to weather the storm than expected,” Byrd explained.

Related Link: SunPower Plunges On Weak Forecast, Low Earnings Metrics And Plans To Cut Workforce

The analyst believes there are multiple industry headwinds, such as declines across several large solar markets and a deepening of oversupply. However, the analyst also expected SunPower to be more “insulated” than its peers by the defensive nature of its business model.

“Given the revised outlook, we now see much greater risk for the company and think the stock will struggle to outperform until the company can convince investors it has visibility on future results and show a track record of execution,” Byrd stated.

The industry headwinds have led to lower than expected visibility into the execution of the company’s utility-scale project pipeline.

Estimates Lowered

Due to this, the EBITDA estimates have been lowered through 2020 by about $150-$250 million per year, to reflect lower system volumes, pricing and margins.

The yieldco dropdown estimates have also been lowered due to the weakness in the U.S. utility-scale development business.

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