Maxeon Solar stock price surged but bankruptcy risks remain

Maxeon Solar Technologies (MAXN) stock price has imploded this year as the company became a penny stock. It has dropped by over 97% this year and by almost 100% from its highest point in 2022. As a result, its market cap has tumbled from over $1.8 billion to $64 million today.

Risks outweigh opportunity

Maxeon Solar Technologies is an American company that emerged from SunPower, one of the top firms in the industry. It was spun off to be an independent solar panel manufacturer while SunPower focused on distributed generation solar and energy storage provider.

In theory, this separation was good as it allowed the two companies to focus on their area of specialty. In this case, SunPower would have a reliable solar panel provider in Maxeon while the latter would have access to its large customer base.

However, things have changed recently. In 2023, the two companies announced that they were not exclusive, meaning that SunPower was free to buy solar panels from other companies.

As a result, Maxeon’s revenues crashed and analysts expect the trend will continue. The most recent results shows that the total revenue dropped to $187 in Q1’24, down from $229 million in Q4’23 and $318 million in Q1’23. It also noted that it was going through a major cash flow challenge.

Also, the company received several shareholder lawsuits that are still ongoing. The lawsuits allege that the company failed to provide enough disclosures about its relationship with SunPower and that it committed securities fraud and other unlawful business practices. SunPower, itself, has already filed for bankruptcy.

Maxeon to build new facility in Mexico

On Monday, the Maxeon Solar Technology stock went parabolic, soaring by over 46% after the company announced that it would start building its Mesa del Sol project in New Mexico later this year.

This is an important project that the company hopes will give it access to US subsidies as it seeks to gain market share in the United States. It plans to spend about $1.9 billion building this project that will have a capacity of 7 million solar panels each year.

While this report made good headlines, the reality is that it is quite risky. First, the company already does a lot of business in the US, its biggest market. Its Q1 results showed that its US revenues came in at $133 million while its international ones were just $54 million.

As such, it is unclear whether the new plant will add any value since the company currently manufactures in countries like Malaysia, China, and the Philippines. While the US is giving incentives to US solar panel manufacturers, the cost is just too high for them to compete.

Second, financing for the $1.9 billion project will be difficult since Maxeon Solar’s own balance sheet cannot support it. It ended the last quarter with $98 million in cash and short-term investments and over $388 million in long-term debt.

Third, solar panel prices are crashing, mostly because of China’s overcapacity, meaning that Maxeon’s margins will continue falling. According to Reuters, China’s solar panel prices crashed by 42% in 2023 as the annual production capacity soaring to 861 gigawatts.

China has mastered the art and science of solar panel manufacturing, thanks to its low input and labor costs. As such, it is hard for a country like the US to compete because of the high labor costs. New Mexico has a minimum wage of $12 per hour.

MAXN earnings ahead

The next important Maxeon stock news will be the upcoming earnings scheduled on August 29th August.

In its Q1 results, the company said that its shipments in Q2 will be between 520 and 600 MW while its revenue will be between $160 million and $200 million. That will be a big drop from the $348 million it made in the same quarter in 2023.

Maxeon has missed its earnings estimates in the last two consecutive quarters, meaning that the trend could continue. For the year, analysts expect that its annual revenue for the year will be $715 million, a 36% drop from the same period last year.

Analysts have lowered Maxeon’s stock forecast, with Goldman Sachs and Raymond James cutting their ratings to sell.

The biggest risk is that Maxeon could go bankrupt in the coming years since its cash burn is continuing.

Maxeon Technology stock forecast

MAXN chart by TradingView

The daily chart shows that the MAXN share price has moved sideways in the past few months. Also, the Average True Range (ATR) indicator continued to its lowest point on record, signaling that the volatility has died.

Maxeon’s Relative Strength Index (RSI) has moved sideways in the past few months. Therefore, Monday’s surge will likely be short-lived as sellers target the key support level at $0.1095, its all-time low. This view is in line with my last article, in which I predicted that the sell-off would continue.

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