Plug Power and SunPower are facing headwinds through first half, prompting downgrades from Susquehanna

By Ciara Linnane

Both stocks have fallen more than 70% in the last 12 months and Plug Power issued a 'going-concern' warning

Plug Power Inc.'s stock fell 1.2% in early trade Thursday, after SIG Susquehanna downgraded the fuel-cell company's stock to neutral from positive and said it expects the residential alternative energy segment's recent headwinds to continue through the first half of the year.

Analysts led by Biju Perincheril also downgraded SunPower Corp. (SPWR) to neutral from positive.

Both stocks have fallen more than 70% in the last 12 months.

Plug Power's stock (PLUG) struggled for most of 2023, and in November, the company spooked investors when it issued a going-concern warning amid quarterly losses, and withdrew guidance to reflect a "severe" hydrogen shortage. The warning included the disclosure of a $3.8 billion deficit as of Sept. 30 and the need to secure external funding sources to get back on track.

For more, read: Plug Power's stock extends losses as investors seek 'clarity' about going-concern warning

"Recent discussions with companies indicate the U.S. residential solar market demand remains weak, led by a slower than expected recovery in California from NEM (net energy metering) changes and softening demand in Southern states," the Susquehanna analysts wrote in a note to clients.

"Companies noted some slight sequential improvement in non-California markets to begin the fourth quarter, but still expect an industrywide contraction in 2024."

The Solar Energy Industries Association, or SEIA, is expecting a 12% decline in U.S. residential installations in 2024, a 5% decline from its previous forecast, due to higher interest rates, flattening utility prices and net metering changes.

SIG Susquehanna is expecting a nearly 10% decline for the U.S., factoring in a modest tailwind to demand in the second half as interest rates start to come down, assuming the Federal Reserve remains on its current course.

"Looking beyond the near-term weakness, we think falling equipment prices, continued increase in utility rates, and potential improvement in cost of capital could all be tailwinds in 2H'24 and into '25. We are modeling overall U.S. residential demand growth of 10-12% year-on-year in 2025," the analysts wrote.

Read now: Plug Power installs first hydrogen-producing system at an Amazon fulfillment center

Revent Treasury guidance on production tax credits "was less advantageous than expected and could cause Plug Power to shirt locations on further production facilities," said the note.

SunPower's stock was not yet active, but is down 79% in the last 12 months, while the S&P 500 has gained 20.5%.

-Ciara Linnane

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01-11-24 0738ET

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