SunPower's (NASDAQ:SPWR) earnings report was a disaster.

Reporting its financial results for fiscal 2016 yesterday, and laying out new guidance for 2017, SunPower flailed wildly, missing Wall Street estimates left, right, and center. Investors were slow to twig to the bad news, with SunPower shares resuming trading this morning down only a couple of percent. But as the day has progressed, concern has mounted. As of 12:18 p.m. EST, SunPower shares are down 5.3%.

Strangely, this has one analyst feeling excited. Ebullient, even.

As revealed on StreetInsider.com this morning, analysts at investment banker Oppenheimer announced that despite SunPower's weak results and weak guidance, they are upgrading the stock to outperform, and assigning a new $10 price target that implies SunPower stock could rise more than 40% this year. Here are three things you need to know about why Oppenheimer thinks that.

Worker holding solar panel

Image source: Getty Images.

1. SunPower's news

Reporting after close of trading yesterday, SunPower admitted that it lost $1.99 per share in fiscal 2016. According to data from S&P Global Market Intelligence, that's three times the size of its loss in fiscal 2015. Naturally, management urged investors to ignore this huge number, and focus instead on its internally calculated "non-GAAP" loss of $0.90. Even under this relaxed standard, however, analysts following the stock had expected SunPower would lose only $0.65 for the year -- so any way you cut it, SunPower missed estimates.

Revenue for the year likewise fell short of the mark, with SunPower booking $2.56 billion in sales, below the consensus estimate of $2.69 billion -- but about $1 billion more than the company sold in 2015. (Unfortunately, SunPower's gross margin was more than halved, erasing the benefit of the greater volume of sales, and causing the larger loss.)

2. SunPower's guidance

It gets worse. Last year, SunPower earned gross margin of only 7.4% on its revenue. This year, SunPower says it's likely to experience both a decline in absolute sales (selling $1.8 billion in the worst case, $2.3 billion in the best) and a decline in the gross profitability of those sales. In Q1 2017, for example, SunPower's best-case scenario calls for gross margin of precisely 0% (i.e., it's currently selling solar panels for no more than the cost of the raw materials needed to build them). SunPower's worst-case scenario is for gross margins to dive to negative 2% -- before operating costs begin to bite, and make the loss even larger.

The company is also likely to be free cash flow negative this year. For the year as a whole, SunPower predicts "positive operating cash flow" (although it won't say how much). Subtract from that an estimated $120 million in capital spending, however, and it looks like SunPower will be burning cash all year long.

3. What's to like?

The obvious question: What is it in all of the above that leads Oppenheimer to recommend buying SunPower stock, and not selling it?

Well, their reasoning goes like this. Last year was a disaster for SunPower. But Oppenheimer says "the pace of declines has slowed materially." While Oppy admits that "solar cycle bottoms are difficult to call," they think this one is starting to level off, and believe average selling prices on solar modules and panels will only "drift modestly lower" before turning back up.

The most important thing: Facts, not hopes

The analyst doesn't give much in the way of facts to support this reasoning, however, aside from praising SunPower for turning in "strong" (but unprofitable) Q4 revenue, and pointing to management's maintaining full-year guidance as a hopeful sign.

Meanwhile, Oppenheimer mouths platitudes about how "SPWR has been a leading solutions provider and will evolve its technology offerings, leveraging its global footprint and trusted brand," and expresses its faith that the solar industry will adopt "rational business behavior" -- even as Oppenheimer acknowledges that it sees "ongoing price competition" that is anything but rational for businesses that hope to earn a profit.

Honestly, how any of this adds up to a reason to believe that SunPower stock will gain 40% or more this year, while reporting losses, bleeding cash, and selling products below cost, is beyond me.

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.