Credit Suisse Upgrades SunPower After Solar Tariff Exemption

SunPower Corporation SPWR shares jumped about 15 percent Tuesday after the company announced that certain interdigitated back contract solar cells and modules will be exempted from solar tariffs that were imposed in January.

The Analyst

Credit Suisse analyst Michael Weinstein upgraded SunPower from Neutral to Outperform and increased the price target from $8 to $10.

The Thesis

The tariff exemption is unlikely to have any impact on SunPower's 2018 earnings, given that it doesn't have retroactive effect and the company has likely imported its module needs for 2019, Weinstein said in a Wednesday note. (See his track record here.) 

The analyst expects gross profit for 2019 and 2020 to benefit by $35 million to $40 million per year relative to Credit Suisse's prior estimates. This is due to lower tariffs, as a majority of the company's U.S. needs are expected to be met by an 800-MW IBC manufacturing facility in Malaysia and a new 500-MW U.S. factory acquired from SolarWorld.

Weinstein estimates the tariff exemption will result in $2 per share upside.

Credit Suisse attributes the rating revision to the removal of the near-term tariff overhang and the company staying on course for exiting non-core assets, delevering and pivoting to higher-margin and less capital-intensive NGT modules and DG markets.

The sell-side increased its EPS estimates for SunPower in 2019 from a loss of 21 cents per share to a profit of 1 cent per share, and for 2020, from a loss of 9 cents per share to a profit of 7 cents per share.

The Price Action

SunPower shares have lost about 11 percent year-to-date.

The stock was trading up 2.25 percent at $7.72 at the time of publication Wednesday. 

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