SunPower Q1’16 Results

SunPower (NASDAQ:SPWR) reported its Q1’16 results last week. The company known for its high efficiency panels, reported a good execution across all segments. The last quarter of 2015 was also marked by strong execution, as a number of projects were completed earlier than expected. SunPower has an impressive project pipeline and confirms its cost reduction plan going forward in 2016. Its commercial and residential solutions Helix and Equinox are also gaining traction. SPWR should benefit from its overall presence across the commercial, utility and residential segments and the increased demand in USA. USA installations alone increased 16% in 2015 to 7.26 GW, when compared to the prior year.

Why is SPWR a good buy

1) Q1’16 Metrics

The company reported revenues of $433 million, when compared to $430 million in the same time last year. Revenues from power plant business constituted more than 50% of the total revenues. The net loss per share stood at $0.30, as against $0.13 EPS in Q1’15. SunPower had recognised revenues for its 50MW of Hooper project in Q4’15, instead of Q1’16. Q1 shipments to USA were 50% higher on a yearly basis. SunPower guided Q2’16 revenues between $310 to $360 million and gross margin of 12-14%. Full year revenue guidance stood at $ 3.2 to $3.4 billion, with a gross margin of 14% to 16%. The company is growing its presence in the residential business significantly and expects to deploy 350-450 MW in 2016. SunPower recently formed Solar Progress Partnership – an alliance with SolarCity, SunEdison and six other New York utilities, to support solar development in New York.

2) Project Pipeline is growing

SunPower has ~270 MW of projects in construction for 2016 in USA. The company is increasing its pipeline to other international markets as well, with new wins in Mexico, Chile, Japan and other Asian countries. Japan remains a primary DG market for SunPower, with high demand for its high efficiency solar panels. SPWR’s Latin America pipeline exceeds 2.5GW and Chinese deployments have also crossed 300 MW mark. SunPower’s association with its parent Total (NYSE:TOT) have enabled the expansion in Middle East and Africa. It closed the sale of 50 MW Hooper project to its yieldco 8Point3 Energy Partners (NASDAQ:CAFD) during Q1’16.

3) New Technology and efficiency will further drive demand

SunPower panels are known for their high efficiency levels. Its X-Series panels with efficiency levels of 22%+ are now in mass production. In the last five years, the company has manufactured highly efficient panels:

• E19 with 19.5% efficiency
• E20 with 20% efficiency
• X21 with 21% efficiency
• X22 with 22% efficiency

Read reviews about SunPower Solar panels here.

The company also launched its residential solution Equinox, more than 1000 systems of which are already booked in Q1’16. Its commercial solution Helix that claims to have 2.5 times faster installation time, is also expected to grow its US marketshare in 2016. The company also signed an agreement with AT&T Inc. to combine Internet of Things (IoT) technology with Equinox, aiming to connect at least 100,000 solar electric systems wirelessly in USA.

4) Capacity Expansion

SunPower’s Fab 4 is ramped up, shipping cells for its X-Series panels. SunPower has plans to grow its annual module capacity to 4GW by 2019. SunPower is aiming at producing solar panels to serve all the major markets across the globe. Its very high efficiency panels will serve the markets like USA and Japan, whereas its low cost panels (with efficiency levels ranging between 17-19%) will be supplied to the other global markets. The company will thus benefit from the increased demand for solar products in the overall markets.

SunPower Equinox Solution

Stock Performance & Valuation

The stock is trading at more than $16 now, almost 50% below its 52 week high price. The market capitalization of $2.33 billion looks lucrative enough given its large product portfolio, good diversification and the technology advantage.

Risks

a) Japan could be a high demand risk for Solar Energy

Japan is a large market for SunPower. SunPower’s high efficiency panels are being manufactured to target markets like Japan. However, with the country facing changes in FIT structure and other grid connectivity issues, Japan looks like the biggest demand risk for solar energy currently.

b) Pushback from Utilities

Solar energy is becoming more and more mainstream each day as can be seen from the increased headwinds it is facing from the utilities in USA. Luckily for SunPower though its DG business has a better global reach and should be less affected. The company was awarded a 15MW rooftop project in Japan in Q1’16. Its recent alliance with New York utilities should also position SunPower to deal better with the situation.

Conclusion

In 2015, solar accounted for more than 29% of new electric generating capacity brought on-line in the USA. According to GTM Research, 16 GW of solar are expected to be installed in 2016. In the coming years solar+storage is set to be a big thing. SunPower was amongst the first few companies to realize the importance of solar storage and expects 30% of its modules shipment in US residential markets with integrated microinverters in 2016. The company is also well positioned to complete major projects in USA in the second quarter of 2016, and supply modules to the large global markets. SunPower has also benefitted from the extension of ITC in USA, and is witnessing increased activities in Chile and Mexico. The companies like SunPower and First Solar (NASDAQ:FSLR) will benefit from their advanced technology edge, which will differentiate them from their Asian peers. I think the stock represents a good buying opportunity now.