What happened
Shares of SunPower (SPWR -1.02%) slumped 15.8% in early trading Friday. The company, which makes and sells solar electric power products, closed on Thursday at $19.02, then opened Friday at $18.11, dropping to $15.94 in the morning, its 52-week low. The stock's 52-week high is $57.52, set last January. The stock is down more than 65% over the past year.
So what
SunPower released preliminary fourth-quarter earnings after the market closed on Thursday and investors were underwhelmed.
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One concern in the report was that SunPower was replacing third-party connectors in its light commercial value-added reseller and commercial and industrial solutions systems (CIS) because the company said it had found a cracking issue in the connectors. SunPower said replacing those connectors will cost it roughly $27 million in the fourth quarter and another $4 million in the first quarter of 2002, though it said it plans to pursue recovery of the costs from the suppliers of the faulty connectors.
The company also said it expected fourth-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be at the low end of SunPower's previous guidance of between $18 million and $41 million.
The combination of the bad news, along with a market headed for its third down day in a row, was enough to send SunPower's shares plummeting.
Now what
It's important to note that SunPower, while it is undergoing some difficulty, is on track for its third consecutive year of revenue growth. Through nine months, the company reported $923.3 million in revenue and even if you use the company's low end of guidance of $361 million in revenue for the fourth quarter, that equals $1.28 billion this year, compared to $1.12 billion last year. It is concerning, though, that the company will likely have negative earnings per share this year. Through nine months, it reported a loss of $0.33 per share.
In the long run, SunPower still appears to be a good bet because of market trends and because it saw a 33% increase in the number of residential homes to 53.3 million in the quarter. The company is in the process of selling its CIS business to focus on its higher-growing residential business. That sale, if it happens, should help balance the company's books and increase its profit margin.
Another thing to watch is if the Build Back Better plan gets passed in Congress, which would be a boon for renewable energy stocks in general as the bill would increase the federal investment tax credit for solar power by 26% to 30% and would extend it for at least 10 years.
