SPWR vs. RUN: Which Solar Stock Shines Brighter?

In this article, I evaluated two solar energy stocks: SunPower (NASDAQ:SPWR) and Sunrun (NASDAQ:RUN), using TipRanks’ Comparison Tool to see which is better. A closer look suggests a bearish view on SunPower and a neutral view on Sunrun.

SunPower designs, manufactures and supplies solar panels, systems and services, while Sunrun designs, develops, installs, sells and maintains home solar energy systems.

SunPower shares are down 45% year-over-year and 72% over the past year, while Sunrun shares are down 35% year-over-year, bringing their annual return to -29%.

The fact that both stocks are down similar percentages this year is indicative of the broader problems facing solar stocks. High interest rates have hit the industry hard, making it harder for people and businesses to finance solar power systems.

In response, solar stocks fell sharply, as evidenced by the 27 percent drop in the value of the Invesco Solar ETF (NYSEARCA:TAN). Let’s see if a closer look at SunPower and Sunrun reveals any buying opportunities on the downside.

Unfortunately, none of these companies are currently profitable, so we’ll compare their price-to-sales (P/S) multiples to assess their valuations relative to each other and their industry. By comparison, the renewable energy industry trades at a P/S of 1.8x, slightly below the three-year average of 2x.

SunPower (NASDAQ: SPWR)

At P/S 0.22x, SunPower is trading at an extremely low valuation, and its higher forward P/S 0.31x suggests that analysts expect the company’s sales to decline. A closer look at the company’s financial position suggests that the bearish view may be correct.

In the fourth quarter of 2023, SunPower moved to a GAAP (generally accepted accounting principles) net loss of $115.6 million from continuing operations, compared to net income of $5.1 million in the same quarter a year earlier. The company did not provide per-share figures, perhaps because more shares may be issued soon due to new financing terms (more on that below), and it has not yet reported results for the latest quarter.

In fact, SunPower received a deficiency notice from Nasdaq for delaying its latest quarterly report. In its press release, SunPower said it “cannot provide any assurances regarding timing” but is “working diligently to finalize” its 2023 Form 10-K and Q1 2024 Form 10-Q.

The company announced a drawdown of $50 million of its previously announced second-collateral loan, issuing warrants to Sol Holding in exchange. The warrant gives the company the right to buy 33.4 million shares at an exercise price of one cent per share. These financing terms alone suggest a downturn for the company, especially when factored into its mounting losses.

What is the target price for SPWR stock?

SunPower has a consensus rating of Moderate Sell based on zero Buys, six Holds, and four Sell ratings assigned in the last three months. At $3.01, SunPower’s stock’s average price objective suggests an upside potential of 38.71%.

Sunrun (NASDAQ:RUN)

With a P/S ratio of 1.25x, Sunrun shares are trading at a discount to the industry, which is justified since the company has not achieved full-year profitability since 2022. While this company is also not in the best financial shape, some signs of optimism suggest that a neutral stance may be appropriate, barring any positive changes.

For example, Sunrun has adopted a storage-first mentality to increase ticket sizes by adding storage capacity to the solar panel systems it sells. In fact, storage attachment rates hit 50% in the first quarter, a sign of potential life.

Additionally, Sunrun’s “net income-generating assets” increased $487 million sequentially in the fourth quarter to $5.6 billion, including $953 million in cash. Annual recurring revenue exceeded $1 billion and the average remaining contract life is 17.6 years. Sunrun also reported 5.7 gigawatts of grid-connected solar capacity.

Other signs of potential include a partnership with Ford (NYSE:F) will serve as the preferred installer for Intelligence Backup Power and the 80-amp Ford Charge Station Pro and Home Integration System. Sunrun will also help Puerto Rico rebuild its energy system by developing a 17-megawatt virtual power plant that will be the first large-scale distributed storage program on the island.

Unfortunately, the company still faces an uphill battle to recover. Even when the company was profitable, its margins weren’t great. In 2022, its net profit margin was 7.5%, and before that, the company was last profitable in 2019, with a net profit margin of 3.1%. So I would suggest caution until those green shoots start to sprout.

What is the target price for RUN stock?

Sunrun has a consensus rating of Moderate Buy based on 11 Buys, four Holds, and zero Sell ratings assigned in the last three months. At $18.46, Sunrun’s stock’s average price objective suggests a potential upside of 45.9%.

Conclusions: bearish on SPWR, neutral on RUN

While both SunPower and Sunrun have entered the depression period along with other solar companies, Sunrun is the clear winner here. When a company agrees to financing terms that include giving away stock at a strike price of pennies per share, it’s usually a sign of desperation that suggests it may be sinking into the ebb.

On the other hand, Sunrun may be better off in the long run, but it’s still a story that needs to be told.

Disclosure