Summary
- SunPower is one of the highest valued and technically sophisticated solar companies on the market today.
- Three reasons to buy SunPower are its sustained performance, its base in the US, and strong investor sentiment.
- Although volatility remains a concern across the broader energy sector, SunPower is positioned well to improve irrespective of broader market issues.
Introduction
SunPower (NASDAQ:SPWR) designs and manufactures a variety of solar products, including high-efficiency crystalline silicon photovoltaic cells, solar panels, and solar systems. It has taken several smart initiatives this year, including forming a YieldCo, 8Point3 Energy Partners LP (NASDAQ:CAFD), with First Solar (NASDAQ:FSLR).
In spite of its solid performance, it has been a rough past month for its share price. Its share price has been brought down because of lower prices in the energy sector and market volatility touched off by uncertainty in the Chinese market. But at a relatively cheap $24/share, now is the time to seriously consider a long term position in the company.
Three reasons to invest in SunPower are its sustained performance, its base in the US, and strong investor sentiment. Although volatility remains a concern across the broader energy sector, SunPower is positioned well to weather any continued volatility in this sector.
Reason 1: Performance
SunPower has maintained a solid performance this year, following up a good 2014. Looking back at its 2014 annual report, there were several positive developments:
We also acquired a differentiating micro-inverter technology that has already been installed on 200,000 homes. This new plug-and-play technology means we can offer a single, easy-to-install solar panel that contains more of the complete system functionality. It includes conduit, grounding, string inverters and meter, greatly simplifying the design and engineering processes and driving down manufacturing costs.We are retrofitting our Philippines-based Fab 1 into Fab 4, where we will begin production of up to 350 megawatts (NYSE:MW) of SunPower X-Series Solar Panels this year. We also announced plans for a new solar panel manufacturing facility in Cape Town, South Africa, where we plan to produce up to 160 MW of our SunPower E20 Solar Panels.Additionally, we made strong inroads in defining our NextGen manufacturing process. We expect this will dramatically simplify the way we make our cells and panels, allowing us to continue to make solid progress on our cost-reduction road map. Our team reached a tremendous accomplishment last September when we manufactured our one-billionth high efficiency solar cell. By the end of this year, our Fabs are expected to generate a total of more than 1,500 MW per year of solar cells.
There are two major takeaways from this.
First and foremost, SunPower is working on improving its technology. Getting more efficient solar panels will help garner consumer interest. As SunPower delves deeper into the home installation business, efficient and easy-to-install panels will be a boon for business. In addition, increased efficiency will reduce costs. This in turn will increase gross margins.
Next, SunPower continues its international expansion. There is tremendous room for growth globally as solar panels enter into a mass adoption phase both for consumers and energy producers. In fact, SunPower completed Chile's second-largest solar power plant, the 70-MW Project Salvador, last year and is continuing to expand its footprint abroad.
In terms of numbers, it's posted good numbers in its last few quarterly reports. It had a fantastic Q4 as I examined earlier this year, beating on both revenue and earnings per share. In the first two quarters of this year, it has beat on earnings per share, but fell short on revenue. The silver line comes from the fact that full-year EBITDA guidance is $425-$475M, with around a 20% 2016 EBITDA growth forecast. In addition, CFO Chuck Boynton noted in the Q2 conference call:
Q2 bookings and pipeline build have been the strongest we've seen in years and positions us well for long term growth, specifically on the P&L. Our non-GAAP gross margin for the quarter was 17.6% and also in line with forecasts.
These are solid numbers and demonstrate continue prospects for positive growth into the future.
Reason 2: Based in the U.S.
One advantage that SunPower has over a lot of other solar companies is that it is based in the United States. This is an advantage because many American solar companies have been less volatile compared to Chinese competitors. So while good Chinese companies like Trina Solar (NYSE:TSL) and JinkoSolar(NYSE:JKS) demonstrate impressive growth, investor confidence in these companies remains more muted because of their base in China. Being based in the U.S. is one of the reasons why energy investors have not sold-off SunPower with anywhere near as much speed or volume.
Another advantage for SunPower is its easy access to the growing American solar energy market. SunPower provides end-to-end solar quote, contract, and construction options for consumers and demand continues to rise. In fact, overall residential solar growth in the U.S. for Q1 2015 was 76% over Q1 2014. This is good news for SunPower and other U.S. solar companies and they will continue to be able to tap into this growing market.
Reason 3: Bullish Investor Sentiment
Analysts remain bullish on SunPower. 5 out of 9 analysts have rated SunPower a "strong buy", with a current price per share target consensus of $39.33. Although analyst sentiment can be misleading at times, the fact of the matter is that multiple investment firms - such as Goldman Sachs - think SunPower is a buy. This bullish sentiment is understandable given SunPower's multiple advantages. If SunPower continues to improve its performance, this sentiment will no doubt continue to grow.
Conclusion
Although there remains issues in the energy sector and broader market volatility, SunPower is an improving solar company with solid prospects for growth. It is continuing to improve its gross margins, technical capabilities, and financial health. SunPower is a buy because of sustained performance, its base in the US, and strong investor sentiment. SunPower continues to have a bright future ahead.
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