SunPower underperformance a buying opportunity

SunPower (NASDAQ:) was lifted from Outperform to Strong Buy at Raymond James on Wednesday, with analysts keeping a $21 price target on the stock.

The analysts told investors in a note that they believe the stock has experienced “excessive weakness” due to its overweight exposure to the California market.

“Having already touched on California’s NEM 3.0, we want to be crystal-clear: this is simply the latest in a long-running series of state-level regulatory changes affecting residential solar adoption in the U.S. market. Some of these changes have been helpful, and others have gone the other way — NEM 3.0 is obviously in the latter category — but none of this fundamentally changes the underlying reality of ever-rising penetration,” said the analysts.

California’s net energy metering program incentivized the adoption of solar, but the new NEM 3.0 version is said to significantly reduce the benefits, with the value of credits for excess solar exported to the grid said to be reduced by 20% to 40%.

The analysts stated that the only real concern about SunPower specifically is its above-average exposure to California, with the state accounting for half of the company’s customer additions in 2022.

“Ahead of an adverse policy change, there is always demand pull-in… this is followed by (for lack of a better word) a hangover… and then growth resumes from the lower baseline. California is no exception. Thus, we look at the recent underperformance in SunPower shares as a buying opportunity,” the analysts concluded.

SunPower shares are up more than 10% Wednesday at the time of writing.