Even though the market seems to have a less-than-sunny view of solar stocks just now, one analyst recently upped his price target on sector mainstay SunPower(NASDAQ: SPWR). SunPower has an upside potential of more than 30% at the targeted price. Let's take a quick look at the state of the company and its industry to gauge whether the analyst's view is realistic.
UBS bumps its SunPower price target higher
In mid-February UBS analyst Jon Windham added $0.25 per share to his fair value assessment of SunPower, for a new level of $4.25. Interestingly, despite the notable gap between the current share price and Windham's new target, the analyst reiterated his neutral recommendation on the solar stock.
That caution might be revealing; at the minimum, it's understandable. The relatively high interest rates necessitated by inflation have yet to come down, despite Federal Reserve officials' comments that they might be imminent. The solar energy sector depends on cheap financing, as solar projects tend to be costly. Those persistently lofty rates were a major factor in solar companies' tough 2023, and they remain a challenge today.
SunPower, not surprisingly, has had its own financing difficulties. The company is looking for solutions, and along with its recently divulged fourth quarter results, it announced $200 million in financing commitments, with the bulk coming from a $175 million set of loans from Sol Holding, its majority owner. A big pack of warrants is part of those commitments, though, and this has justifiably raised investor fears of significant share dilution.
A play for patient investors
Solar energy is a long-term play as an investment. The world needs -- and increasingly desires -- to go green with its energy sources, and solar is the perfect technology for such ambitions. However, companies in the sector are frequently unprofitable. Consumer take-up, while encouraging, isn't widespread enough yet to flip those bottom lines into steady black numbers. Patience is key for solar bulls, including SunPower shareholders.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
