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Investment Overview for SunPower (NASDAQ:SPWR)
Below are key drivers of SunPower's value that present opportunities for upside or downside to the current Trefis price estimate for SunPower:
- SunPower's Americas EBITDA Margin:
SunPower's Americas EBITDA Margin plummeted from around 13% in 2010 to less than 5% in 2011 due to weak market conditions. However, they recovered to around 9% in 2012 on the back of higher revenues from the construction of utility scale power plants. In 2013, margins once again recovered to around 12.5% on the back of construction activity on the company's large North American projects. We expect that EBITDA margins will gradually recover to around 19% by the end of the Trefis forecast period as production costs continue to decline while renewed demand provides support on the pricing side. However, should pricing remain depressed and margins stabilize at around 14% there could be a downside of around 30% to the Trefis price estimate. Conversely, if margins rise to around 24%, there could be an upside of around 25% to the Trefis price estimate.
- Average Selling price Americas:
The average price declined from around $4.42 per watt in 2010 to around $3.61 per watt in 2012 due to a reduction in manufacturing costs in addition to extremely weak market conditions and strong competition. In 2013, prices fell further to around $3.30. We expect prices to decline and stabilize at around 2.70 per watt over the long term as a decrease in module prices could be offset by an increase in sales of solar power systems. In a scenario where prices actually declined to around $2 by the end of the Trefis forecast period, we could see a 15% decline from the Trefis price estimate. Alternatively, if the average selling price in the Americas increases to $3.30 by the end of the forecast period, we could see an upside of around 10% to the Trefis price estimate.
SunPower, once owned in majority by Cypress Semiconductor, is a manufacturer and distributor of silicon based solar modules, which are used to convert sunlight to electricity. The company produces solar power products for installation on residential and commercial units as well as large scale, utility sized projects. SunPower's solar modules have among the highest conversion efficiencies. The company also develops large scale solar power plants. In 2011, Total S.A. of France acquired a majority stake in the firm.
We estimate that sales of modules and solar systems in the Americas account for most of the company's value. This is partially due to the following factors:
Acquisitions Increased Utility-Scale Footprint
Solar cells manufactured by SunPower were historically used for installation on residential and commercial units before the acquisition of PowerLight in November 2006. This acquisition immediately gave the company a significant footprint and it has focused increasingly on these projects since then. Most of these higher-margin sales are in the Americas.
As prices for traditional forms of energy like coal and oil rise and the concern for global warming increases, government subsidies and industry innovations have driven significant growth in the renewable energy industry over the last few years. However, as a result of the global economic downturn many governments have been forced to cut renewable energy subsidies, on which many companies relied. This has led to a drastic decline in prices and pressured margins for most manufacturers.
Environmental Concerns Driving Renewable Energy Growth
Fossil fuels are limited in supply, with easily extractable reserves quickly being depleted due to worldwide economic growth. As the world approaches peak oil, the scarcity of new reserves will likely drive up the demand for renewable energy.
Furthermore, current energy production methods release pollutants like smog, as well as carbon dioxide gas, which contribute to the greenhouse effect and global warming. Solar energy production produces little, if any, pollution or emissions, making it one of the cleanest sources of power. Increased popular education on these issues is creating pressure for governments and energy companies to regulate energy production. This movement is having a worldwide impact on energy regulation in the form of global emissions caps.
Significant solar capacity has come online over the past few years while demand has not grown as much. As a result prices have been under pressure in the industry.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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