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Investment Overview for SunPower (NASDAQ:SPWR)
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Below are key drivers of SunPower's value that present opportunities for upside or downside to the current Trefis price estimate for SunPower:
Americas Division
- SunPower's Americas EBITDA Margin:
SunPower's Americas EBITDA Margin plummeted from around 13% in 2010 to less than 2% in 2011 due to weak market conditions. However, they recovered to around 7% in 2012 on the back of better sales to utility-scale power plants which are more profitable. We expect that EBITDA margins will gradually recover to around 13% 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 10% there could be a downside of around 70% to the Trefis price estimate. Conversely, if margin are able to recover to nearly 15% by the end of the forecast period there could be an upside of about 40%.
- Average Selling price Amercias:
The average price declined from $4.40 per watt in 2010 to around $3.61/watt in 2012 due to a reduction in manufacturing costs in addition to extremely weak market conditions and strong competition. We expect prices to stabilize at these levels over the Trefis forecast period 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 $3 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 $4.30 by the end of the forecast period, we could see an upside of around 20% to the Trefis price estimate.
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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.
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We estimate that sales of modules in the Americas account for most of the company's value. This is partially due to the following factors:
Acquisition 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.
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Government Subsidies
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.
Industry Overcapacity
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.
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