Will SunPower’s Spin-Off Plan Help Its Stock?

SunPower (SPWR) shares rose as much as 15% on Monday. The company announced its plans to spin-off businesses into global solar panel manufacturing and US distributed solar generation and storage. However, the shares couldn’t maintain the gain. The stock closed with just a 1% increase on Monday. J.P. Morgan increased its target price from $12 to $13 on the same day. SunPower shares have almost halved in value since August. However, the stock has a hefty gain of more than 70% YTD.

SunPower’s spin-off

The transaction is expected to simplify the company’s organizational structure and lower costs. The transaction will likely be completed in the second quarter of 2020. Notably, the transaction is subject to regulatory approvals. Maxeon Solar Technologies will look after its global solar panel manufacturing. At the same time, the new SunPower will take care of the downstream solar system and storage services.

SunPower shareholders will receive a 71% stake in the Maxeon Solar. The company will continue to run its Performance Series (P-Series) module facility in Oregon. The spin-off will likely facilitate a better focus and streamline SunPower’s operations. The company continues to see big potential in distributed generation and storage services. SunPower expects revenue growth of around 10%–20% and gross margins around 20% in the long term.

SunPower has transformed from utility-scale solar to residential solar and storage in the last few years. As a part of the transaction, SunPower’s Chinese partner Tianjin Zhonghuan Semiconductor Company will make an investment of $298 million in the newly-formed Maxeon Solar.

SunPower’s Q3 earnings

The company surprised investors and reported profits in the third quarter. SunPower has been reporting losses for the last several quarters. In the third quarter, the company reported a net income of $11 million on total revenues of $491 million. To learn more, read SunPower Stock Surged after Strong Q3 Earnings.

SunPower stock traded quite strong in the first half of 2019 despite reporting losses. However, investors were optimistic about the upbeat guidance for the second half of the year. We’ll have to see how the transaction plays out in the long term for investors.

The Invesco Solar ETF (TAN) has risen more than 50% YTD. SunPower forms more than 3% in TAN.

So far, First Solar (FSLR) stock has risen more than 23% this year. Solar stocks have been one of the bright spots among equities this year. To learn more, read First Solar Stock Still Looks Weak after Q3 Earnings.

Analysts’ target prices

SunPower stock offers a mean target price of $10.16, which indicates a potential upside of 20% for the next year. The stock closed at $8.47 today. Among the 12 analysts covering the stock, five recommend a “hold,” four recommend a “sell,” and three recommend a “buy.”

First Solar stock offers an estimated upside of 37% compared to its current market price of $52.48. Analysts have given the stock a mean target price of $72.

Read Solar Stocks: Paying Too Much for a Rosy Outlook? to learn more.