Looking On The Bright Side: Baird Upgrades SunPower

Premised on a continued improvement in sentiment, Baird upgraded shares of SunPower Corporation SPWR

The Analyst

Baird analyst Ben Kallo upgrades shares of SunPower from Neutral to Outperform and upped his price target from $7 to $10.

The Thesis

Sentiment toward SunPower stock should improve over the next two-plus quarters as the company ramps P-series production, strengthens its balance sheet and sells 8Point3 Energy Partners LP CAFD and potentially other assets, Kallo said in a Sunday note. (See Kallo's track record here.)

SunPower is an intermediate-term trade as improving sentiment drives shares higher amid strong demand and stabilization in pricing, the analyst said. But the first half of 2018 could be challenging as the company executes on restructuring plans, the analyst said.

Though the restructuring will take time, Baird said it is buyer of the stock, as it believes the company will emerge with a simpler and more effective growth story.

SunPower expects to use proceeds from the sale of 8Point3 Energy to retire its 2018 convertible bonds, Kallo said. 

"Importantly, SPWR expects to end 2017 with $350M in cash before the sale of CAFD (which we estimate could generate $400M+ in cash) or other non-core assets." 

A decision on the Suniva petition is likely in early 2018, according to Baird. 

"We believe potential headwinds from the Suniva petition are largely priced in, and shares could benefit if no tariff is enacted or SPWR receives an exemption,"Kallo said. 

The Price Action

Shares of SunPower are up over 44 percent year-to-date.

At last check, the shares were up 11.81 percent to $9.32.

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Photo courtesy of SunPower.