Wednesday's Top Upgrades (and Downgrades)

Analyst says to buy SunEdison and SolarCity -- but not SunPower.

Jul 2, 2014 at 6:55PM

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense and which ones investors should act on. Today, we're focusing our lens on the solar power companies, as investment banker Canaccord Genuity initiates coverage of the sector with new buy ratings for SolarCity (NASDAQ:SCTY) and SunEdison (NYSE:SUNE), but withholds endorsement for SunPower (NASDAQ:SPWR). Taking these ratings in order...

SolarCity, Elon Musk's venture for leasing solar panels to the military, business, and consumers, won a "buy" rating and a $94 price target from Canaccord Genuity this morning. Quoted on, the analyst predicted that SolarCity will "continue to lever its scale, leading brand, project finance capabilities and channel partners to reduce component costs, costs of capital, expand geographically and continue growing volumes."

One thing Canaccord did not predict for SolarCity, though: profits.

While SolarCity's revenues are growing by leaps and bounds -- up fivefold over the past five years -- most analysts who follow the company see nothing but losses for SolarCity at least as far out as 2016 (according to S&P Capital IQ estimates). Unprofitable today, and burning increasingly large amounts of cash with every passing year, it's hard to see the stock as attractive when all of its "levering" of "scale" seems to result in only greater losses for SolarCity's shareholders.

Next up: SunEdison. The company formerly known as MEMC Electronic Materials used to be a pretty pure play on the production of silicon wafers for computer chips and solar panels. Today, SunEdison is more of a bet on the increasing popularity of large-scale solar power projects, which now account for a majority of the company's revenues.

Canaccord likes the stock as a play on "greater commercial and utility-scale adoption," noting that with 1.3 gigawatts of solar power generating capacity interconnected already, SunEdison has four more gigawatts' worth of projects in its backlog, "providing good visibility and a hedge against political uncertainty with respect to solar subsidies."

Like SolarCity, however, SunEdison is also unprofitable today, and burning cash like mad, with $1.91 billion in negative free cash flow over the past 12 months dwarfing even the company's $1.11 billion trailing GAAP loss. So long story short, Canaccord may like the stock, but if you like to own companies that actually earn profits from their business, there's really not a lot to like about SunEdison today.

SunPower Corporation
Last, and in Canaccord's estimation least, we come to SunPower. A bit of an oddball in the solar sphere, this company is actually earning a profit -- $215 million last year (although free cash flow is negative, natch).

Canaccord criticizes the company for having a too-slow growth rate (analysts see its profits growing at "only" 30% annually over the next five years). But from a traditional "we like to own companies that earn profits" perspective, it's hard to see why Canaccord would leave this stock out in the cold while showering praises on its money-losing rivals.

As Canaccord itself admits, "SunPower has among the strongest pipelines, project experience and technology in the solar space. We calculate that it is retaining significant amounts of value from the projects it sells and from its residential leases, largely given the higher energy production its systems provide over their lifetime." 

Now pair this praise with the analysts' consensus projection of 30% long-term earnings growth and SunPower's 27.5 P/E ratio. If the company can just turn its cash flow statement around and begin to generate a bit of cash profits to back up the "net earnings" it's reporting on its income statement, this just might be the solar stock to beat.

Rich Smith has no position in any stocks mentioned, and doesn't always agree with his fellow Fools. Case in point: The Motley Fool both recommends and owns shares of SolarCity.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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