SUNW Stock Forecast: Consolidation on the Solar Energy Market

Sergey Okun  This SUNW Stock Forecast article was written by Sergey Okun – Financial Analyst, I Know First.

Highlights:

  • Since January 2021, the company’s stock has grown by 107%
  • Acquisition of Solcius. Expected that the combined company to be profitable in the first full year after integration and after capturing strategic, operational, and cost synergies. If the companies had been combined for all of the calendar year 2020, the revenue would have increased by 247%
  • DCF support around $14 or over 43% upside for SUNW stock for the coming year
(Source: pixabay.com)

Overview

Sunworks, Inc. is a provider of solar power systems for the agriculture, commercial, industrial (“ACI”), public works, and residential markets. The company provides a full range of installation services to solar energy customers including design, system engineering, procurement, permitting, construction, grid connection, warranty, system monitoring, and maintenance. Sunworks is a Delaware company. The common stock is traded on the Nasdaq Capital Market under the symbol “SUNW”.

Accelerating the Business Growth through Acquisitions

(Source: flickr.com)

Sunworks can be classified as a growing company. The company has not paid cash dividends in the past and does not plan to pay cash dividends for the foreseeable future. The company plans to retain the future profit for the business development. The COVID-19 pandemic has resulted in lost or delayed Sunworks’s revenue. The governmental response to COVID-19 had its negative impact on revenue by limiting customer interaction and slowing the sales process. So, the company revenue decreased by 36.6% in the pandemic year, but Sunworks had a backlog of $42.6 mil.

(Figure 1 – SUNW’s Revenue Structure)

Sunworks’s strategy is focused on enhancing the company’s growth and scale through acquisitions. Sunworks has announced the acquisition of Solcius for $51.8 mln in an all-cash transaction. The transaction creates a national solar power provider with a presence in 12 states, including California, Oregon, Utah, Nevada, Arizona, New Mexico, Texas, Colorado, Minnesota, Wisconsin, Massachusetts, and South Carolina. Solcius LLC is a full-service residential solar system provider committed to reducing carbon emissions while increasing utility bill savings for thousands of environmentally and financially conscious customers across the country. In 2020, Solcius generated approximately $93.4 million in revenue and reported $2.8 million of operating income. Sunworks expected acquisition synergies are:

  • The combination creates a national leader in the rapidly growing residential space, poised to capitalize on significant strategic synergies
  • Leverage expertise and infrastructure of Solcius to quickly and cost-effectively establish a presence for residential solar installation in new markets
  • Provides Sunworks with a national footprint to facilitate the diligent and rapid expansion of agricultural, commercial, industrial, and public works service offerings in additional geographies
  • Improves scale, with pro forma revenue of approximately $131.5 million if the companies had been combined for all of the calendar year 2020, and a combined backlog of $81.4 million if the companies had been combined as of December 31, 2020
  • Enhanced economies of scale, leading to better access to suppliers, vendors, and financial partners, as well as marketing and customer acquisition opportunities
  • The transaction is expected to be accretive to earnings and will drive cash flow once integration synergies have been implemented

Also, Sunworks announced that Judith Hall has been named Chairperson of the Board of Directors. This change in corporate governance should affect the effective Solcius integration and ensure further business growth.

The U.S. Government actively stimulate the development of the solar energy market by the Solar Investment Tax Credits and eligibility for accelerated depreciation. Also, different states in the U.S. offer a personal and/or corporate investment or production tax credit for solar energy that is additive to the Investment Tax Credit. According to ReportLinker, the U.S. solar energy market is expected to grow at a CAGR of 17%. Now SUNW trades on high historical valuation ratios that underlined market opportunities for future business growth. Average quarter values of P/S and P/B are 0.36, and 2.08 respectively for the period 2016 – 2020; median values of P/S and P/B are 0.29 and 1.82 respectively for the period 2016 – 2020.

(Figure – 2 The dynamic of SUNW’s Price Ratios)

DCF Estimates $14 SUNW Stock Forecast

The DCF analysis shows that SUNW’s target stock price should be around $14 in the coming year. This expected share price makes a 43% upside from the price on May 5th. The below forecast is based on average data from previous years, the direction of the company’s policy, and macroeconomic expectations.

(Figure 3 – DCF Model of SUNW’s stock)

I have made the next assumptions and estimations for this DCF:

  • the effective tax rate to be 8%
  • the market Beta and the perpetuity growth rate (g) to be 1.91 and 5.0%, respectively
  • the risk-free rate and the risk premium to be equal to 1.80% and 5.6%, respectively

I made a sensitivity analysis of SUNW based on WACC (in brackets are written the value of Market Beta) and growth:

(Figure 4 – Sensitivity Analysis of SUNW’s stock)

Do Technical Indicators Support Bullish SUNW Stock Forecast?

(Source: Yahoo Finance)

As we can see in the chart, currently SUNW’s stock price is flat with support and resistance levels of $9.20 and $16.27, respectively. I suppose that the future stock dynamic will be determined by uncovering information about the acquisition of Solcius. The acquisition was consumed on April 8th, 2021, and the financial statement will be provided around after 71 days after the acquisitions.

(Source: Yahoo Finance)

The Yahoo Finance coverage for the company is performed by 3 analysts who took the Buy position on the stock.

Conclusion

I take a buy-side on SUNW stock because the stock holds a positive DCF forecast resulting in a $14 target price, i.e., around 43% upside potential. The company has made a highly promising acquisition of Solcious that accelerates the future business growth and should allow leveraging the high growth potential of the U.S. solar energy market.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the SUNW stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with SUNW Stock Forecast

I Know First has been bullish on the SUNW stock forecast in the past. On January 1st, 2021 the I Know First algorithm issued a forecast for SUNW stock price and recommended SUNW as one of the best consumer stocks to buy. The AI-driven SUNW stock prediction was successful on a 3-months’ time horizon resulting in more than 232.03%.

This image has an empty alt attribute; its file name is premium-image-1-4.png

To subscribe today click here.

Please note-for trading decisions use the most recent forecast.