SunPower's Challenges Are Priced In At This Valuation

Oppenheimer upgraded SunPower Corporation SPWR to Outperform from Perform, saying the company’s challenging operating conditions are priced in to shares. The upgrade came after the company posted “strong” fourth quarter revenue and maintained 2017 guidance.

SunPower, which has suffered from substantial module margin compression, reported fourth quarter non-GAAP EPS of $(0.64) versus consensus of $(0.46). Non-GAAP revenue was $1.097 billion versus Street view of $1.047 billion. Non-GAAP gross margin came in at (2 percent) compared to consensus of 3 percent.

For the first quarter, the company guided to non-GAAP revenue of $370-$420 million versus consensus of $459 million.

The company also maintained its FY2017 non-GAAP revenue outlook of $2.1-$2.6 billion versus consensus of $2.4 billion. Deployment guidance of 1.3-1.6 GW was also reiterated.

“We upgrade SPWR to Outperform from Perform incorporating the value of its dealer network, balance sheet support from Total, and potential to integrate technology serving the evolving needs of solar and renewables customers,” analyst Colin Rusch wrote in a note.

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Rusch is seeing more rational business behavior industrywide and expects SunPower to overcome pricing war by evolving its technology offerings, leveraging its global footprint and trusted brand.

The analyst also expects improving gross margin throughout 2017 with the ramp of the P-series and now projects FY17 non-GAAP EPS of ($1.97) (was ($1.31).

Shares of SunPower closed Wednesday’s trading at $7.25. In the pre-market hours, the stock is down 3.72 percent to $6.98.

Rusch has a price target of $10.