What happened
Shares of solar energy stocks soared on Tuesday after a fairly negative report by one of the industry's suppliers. This may be more about the market seeing the worst is over for the residential solar industry than about a fundamental improvement in these companies' positions.
Maxeon Solar Technologies (MAXN 17.42%) actually dropped 23.7% in earnings trading after reporting preliminary third-quarter results but has recovered and is now up 2.6%. Residential solar stocks were the ones that soared, with Sunnova (NOVA 8.70%) up as much as 12.8%, SunPower (SPWR 5.85%) climbing 14.5%, and Sunrun (RUN 5.97%) popping 13.8%. The three stocks were up 11.2%, 13.1%, and 12.9% respectively at 12:15 p.m. ET.
Image source: Getty Images.
So what
Maxeon started the news today, announcing a preliminary third-quarter revenue range of $224 million to $229 million and shipments of 622 megawatts to 632 megawatts. This was well below the $299 million in revenue analysts expected.
The company is still in a dispute with its largest U.S. customer, SunPower, over payments under a master supply agreement. SunPower has been paying Maxeon for product, and they're getting closer to an agreement, but the two companies are still at odds.
Maxeon also announced a 15% reduction in its workforce, so costs are clearly under pressure.
Overshadowing the Maxeon news was a sharp drop in bond yields around the world. In the U.S., where most of these companies operate, 10-year government bond yields dropped 17 basis points today to 4.63%, reversing a lot of the yield increase of the past week.
Yields are important for solar companies because a rooftop solar installation can last 30 years or more, so the value or cost savings last a long time. Low rates make these long-term cash flows (direct or indirect) more valuable, making it easier to justify the upfront investment of building solar.
Now what
Solar stocks have all been trading wildly as interest rates move, but this is finally a move in the positive direction. What we're hearing from the supplier side from Maxeon isn't positive, though. Falling revenue means both price and volume pressure, which isn't going to help the bottom line. This has been a concern for suppliers across the industry.
As much as the momentum is for growth in solar, it's not a straight line up, and this is an incredibly competitive market. The takeaway today is that suppliers will likely be squeezed as installers struggle to make the numbers work for many projects.
What we won't know until earnings come out is the impact on installers themselves. They have direct control over what they charge customers and how much they push volume, so it's possible they were able to maintain decent margins in the third quarter even if volume was down. But the next few quarters may be even more questionable as higher rates move their way through the system.
All of this said, solar stocks are down so much right now that installers, especially, likely have some upside for investors. They're the point of contact for customers and where subsidies and financing flow. I think they'll come out of the current environment better than suppliers like Maxeon, and that's likely contributing to their rise today.
