- Solar stocks like SunPower are set to benefit from tax credits attached to the Inflation Reduction Act
- Analysts see triple-digit earnings gains next year
- Will the current sideways chart pattern lead to further price gains?
The sun is shining on solar stocks, such as SunPower (NASDAQ: SPWR) following the passage of the Inflation Reduction Act. During a market downturn, it’s critical to pay attention to companies showing fundamental and technical strength, as these could be among the next big winners in a bull rally.
That’s where solar stocks come in.
Among other things, the bill offers tax credits and rebates to individuals and businesses that install solar energy gear.
SunPower is a mid-cap and is part of the S&P 400 Mid-Cap index, tracked by the SPDR S&P MIDCAP 400 ETF Trust (NYSEARCA: MDY).
The company manufactures photovoltaic solar systems, as well as battery-storage gear, mainly for home use.
The stock advanced nearly 29% in July as big investors anticipated passage of the Inflation Reduction Act. It bounced nearly 18% higher in August as the Act was passed, and is up 3% so far in September, holding up much better than its index, which is down nearly 10% for the month.
Rebounding After Losses
The company, which went public in 2005, limped along with losses from 2016 through 2020. That turned around last year, with net income of $0.21 per share. Analysts expect earnings to come in slightly lower this year, at $0.19 per share, but posting a strong rebound next year, to $0.64 per share, on expected sales due to the Inflation Reduction Act.
That would be a whopping gain of 237%.
Analysts have a “hold” rating on the stock with a price target of $22.20, which would mark a downside of 9.72%, according to MarketBeat data.
So what’s going on there, given that earnings are forecast to grow at a triple-digit rate?
First, we’re in a turbulent market that is seeing even strong earners get whipsawed on a moment’s notice, along with the broader market. Second, analysts are divided about some aspects of the company’s business model that relies on direct sales, rather than a subscription model that generates recurring revenue.
But overall, the trend seems headed in the right direction. When SunPower delivered its second-quarter earnings report early last month, the company said it added more than 19,000 customers, more than double the number from a year earlier.
In the earnings conference call, CEO Peter Faricy attributed the gain to a boom in new home construction, many of which are using green technologies to appeal to younger buyers. Of course, incentives that existed before the Inflation Reduction Act also play a role.
In the quarter, SunPower’s revenue climbed 60% to $417.8 million. Adjusted earnings came in at $0.03 per share, topping views of $0.05 per share, according to MarketBeat earnings data.
On a non-adjusted basis, the company beat views by a penny.
SunPower’s chart shows an essentially sideways pattern since mid-August. In a formation that began in April, the stock undercut its previous structure low, which can be a good start for a new rebound when the market eventually turns higher.
Government Actions That Actually Help Stocks?
Regulatory and governmental changes are certainly a driver of price growth in certain industries, whether or not some investors approve. One of the great lessons of investing is: Set opinions aside, whether pro or con, and watch what the stock and its industry are doing.
If you purchase any stock, including SunPower or any other solar name, during a volatile market, be aware that even those with great prospects can get swept lower in a heartbeat. On the one hand, there is certainly an opportunity to scoop up shares at lower valuations right now. On the other, use caution about trying to catch the proverbial “falling knife.”