SunPower Q2 Preview: What To Expect As Solar Star Winds Down?

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SunPower (NASDAQ:SPWR), the second largest U.S. solar equipment manufacturer, is expected to publish Q2 2015 results on July 28, reporting on a quarter that is likely to have seen the company wind down on the massive Solar Star project, that has been the biggest driver of its recent earnings. [1] We expect earnings to improve sequentially, on account of seasonally better installations. However numbers could trend lower on a year-over-year basis, owing to weaker project sales and the retention of certain projects on the company’s balance sheet, as it geared up for the formation of its joint venture yieldco 8point3 Energy Partners (listed in June). For this quarter, we will be watching SunPower’s progress in bolstering its international power plant business as well as its residential and commercial business in the United States.

Trefis has a $36 price estimate for SunPower, which is significantly ahead of the market price. We will be revisiting our price estimate post the earnings release.

See Our Complete Analysis For SunPower

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Power Plant Business: Solar Star And Chinese projects In Focus

The 579-megawatt Solar Star project, which is being built out for MidAmerican Energy in California, has been SunPower’s biggest revenue driver in recent quarters. However, its impact on earnings is likely to be more subdued compared to previous periods as the project is winding down, with the company having already grid connected 500 MW as of Q1, with plans to achieve substantial completion on the project in Q2. Going forward, other U.S. projects such as the Henrietta (128 MW) and Hooper (60 MW) – that have executed power purchase agreements, but are not yet sold – could provide some revenue stability for SunPower. International projects are also likely to account for a greater portion of SunPower’s revenue mix.

SunPower is one of the few Western solar companies that has made some progress in China, banking on its low-concentration photovoltaic (LCPV) technology. SunPower has a joint venture agreement in place to manufacture and deploy its proprietary C7 solar concentrator technology in China, and it intends to build over 250 MW of projects in the country this year. In 2014, the firm signed a second joint venture that aims to develop and own at least 3 GW of PV power plants (time frame remains unclear), primarily located in the Sichuan province. Earlier this year, the company said that it would partner with Apple (NASDAQ:AAPL) to build two solar power projects in the Sichuan province, with total capacity of 40 MW. Construction on these projects has already started and the company expects to complete them by the end of the year. We will be interested to hear of the firm’s progress in executing on its Chinese projects this quarter.

Distributed generation

Although SunPower’s distributed business has been a smaller driver of historical earnings, owing to smaller volumes and lower margins (under 40% of adjusted-earnings in 2014), it’s likely to become a more important part of SunPower’s performance going forward, as it completes its mega utility projects in the United States. The U.S. residential solar market has been one of the brightest spots in the solar industry, growing by over 76% in Q1 to 437 MW, according to the Solar Energy Industries Association. [2] SunPower is well poised to take advantage of this growth, given its high-efficiency panel technology, high quality, and flexible financing options such as its residential leasing program.

SunPower currently has industry leading panel efficiencies (upwards of 20% on most panels), and the company has also been refining its  products through acquisitions and partnerships. Last year, it acquired SolarBridge, a manufacturer of microinverters for solar panels, in a move that will allow it to reduce the balance of system costs and improve the energy yield of its panels. (related: Why SunPower Is Buying A Microinverter Manufacturer) Separately, the firm has also partnered with Stem to resell its behind-the-meter battery systems to commercial customers in the United States. [3] SunPower’s residential leasing program has also been seeing steady growth, adding about 19 MW of new additions in Q1 2015 , taking its cumulative bookings to 241 MW. [4] SunPower has noted that returns on its leasing program have been compelling, while indicating that interest from potential financing partners has also been high.

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Notes:
  1. Press Release []
  2. Fueled by Growth in Residential Solar, US Installs 1.3GW of PV in Q1 2015, Greentech Solar, June 2015 []
  3. SunPower’s (SPWR) CEO Thomas Werner on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, April 2015 []
  4. SunPower Q1 2015 Earnings Supplementary Presentation []