Why Gordon Johnson Says SunPower Is A 'Perpetually Loss-Making' Company

Solar solutions and services provider SunPower Corporation SPWR reported fourth-quarter results last week that include "accounting shenanigans" made to "distort" its business unit cash flows, according to GLJ Research.

The Sunpower Analyst

Gordon Johnson II maintained a Sell rating on SunPower's stock with an unchanged $4.29 price target.

The SunPower Thesis

SunPower's earnings presentation showed that the company's business unit generated $122.4 million of cash in the fourth quarter, but according to "traditional accounting definitions," this is not accurate, Johnson said in a Tuesday note. (See his track record here.)

Specifically, the company boosted its BU cash by $131.5 million by including several non-core transactions, the analyst said:

• $91.5 million of consolidated debt issued in the quarter as "business unit cash" generated.
• $20 million in spillover from the third quarter from an Oregon sale-leaseback transaction
• $20 million in legacy power plant profit.

The companysaid its 2019 adjusted EBITDA was $98 million, but similarly, this doesn't tell the whole story, Johnson said.

SunPower's EBITDA includes "a bunch" of one-time asset sales in EBITDA, which he said is a "HUGE no-no," as investors put a multiple on a company's EBITDA. Excluding one-time items places SunPower's EBITDA closer to $41 million, the analyst said.

Finally, bulls are counting on the company splitting itself up so the "New SPWR" will have no recourse debt by putting existing debt into the "Old SPWR," or Maxeon, according to GLJ Research.

But existing shareholders today would receive, as part of a split, exposure to Maxeon, Johnson said — and the two businesses combined still lost a lot of money.

For GLJ Research, the bottom line is that SunPower is intentionally including one-time and non-core cash items in its results, and this doesn't erase the fact that it is "still a perpetually loss-making company, Johnson told Benzinga in an e-mail.

After all, the company managed to burn cash in the fourth quarter, he said, which is its strongest period "by far."

SunPower Price Action

Shares of SunPower were trading higher by 7.73% Tuesday at $8.98.

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