Maxeon One Month In

The post “Solar Bonds Spiced with Equity Option” published on July 10^th discussed an offering of convertible notes issued by Maxeon Solar Technologies, then the manufacturing subsidiary of SunPower’s (SPWR:  Nasdaq), a developer of solar power technologies.  The notes carried an extra option to entire investors who might hesitate against talk of a spinout of Maxeon by SunPower.  Since then talk has become reality and the common stock of Maxeon Solar Technologies is now listed on the Nasdaq under the symbol MAXN.

The first day of trade on August 27, 2020, saw a closing price of $18.24.  The stock has since slipped from that momentous day to $13.41.  Of course, some of the trading weakness can be attributed to the worries that have taken the broader U.S. equity market uncomfortably close to ‘correction’ territory.  The stock could also be impacted by prepaid and physical delivery forward transactions with a leading investment banking firm.  Carrots to entire investors, the forward transactions were expected to facilitate derivative transactions related to the convertible notes issued earlier in the year.

Nonetheless, MAXN trades near one million shares each day and commands a nickel bid/ask spread.  This is a healthy start for the stock of spinout security. 

Buying a share gets a stake in solar cell manufacturing sites in Malaysia and the Philippines as well as solar panel assembly plants France, Mexico and China.  These are the locations where the company manufactures its Maxeon product group that uses the company’s proprietary interdigitated back contact technology and the Performance product group that features a unique shingled cell technology.  Property, plant and equipment were valued near $259.2 million based on SunPower’s reported asset values in March 2020.  Total assets were $1.2 billion.

The 'back contact' technology developed at SunPower has set the Maxeon products apart from other solar cells.  The entire emitter is located at the rear of the cell, economizing on footprint for equivalent power generation.  One of the key selling points for distributors and their sales personnel is that Maxeon solar cells can generate as much as 35% more power using the same area as conventional solar cells.  Likewise the Performance product group has efficiency and reliability advantages over its competitors.

Maxeon is counting on these competitive products to help it capture market share.  In the full year 2019, the operations that have been poured into Maxeon delivered $1.2 billion in revenue.  Profit margins are razor thin and the operating loss was $131.3 million.

The stakes are high for Maxeon.  Besides the need to support its stock price with rich earnings, the company needs to generate $12.4 million in cash to pay interest at a rate of 6.5% on the $200 million in convertible notes.   Fortunately, SunPower set Maxeon up well with an estimated $374.2 million in cash and equivalents that could be tapped if operating cash flows fall short of goal.

The company’s first quarter report for the period ending September 2020, will provide investors with their first look at Maxeon on its own.  It will also give analysts a chance to interact with senior officers without SunPower reinforcements.  As tempting as the recent low price might seem, a long position in Maxeon could wait until the numbers are available. Better-than-expected results could send the stock moving higher, with an additional boost from short sellers covering positions set up in the first weeks of trading.  We estimate the short position in MAXN is between 8% and 10% of outstanding shares. 

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.