Could The Distributed Solar Market Prove A Silver Lining For SunPower?

SunPower (NASDAQ:SPWR), the second largest U.S. solar panel manufacturer, saw its stock price decline by roughly 30% over the last month, after the firm warned of significant challenges to its power plant business, which prompted the company to guide for a net loss of between $100 to $200 million for 2017 while reducing its headcount by about 15%. The utility solar market is seeing depressed pricing amid competition from smaller players, while the recent bankruptcy and liquidation of assets of SunEdision, the largest solar developer, have also been impacting required rates of returns investors are expecting from projects. Project visibility for 2017 also remains weak, as the firm has only one 111 MW project in Chile that is due in 2017, compared to about 575 MW this year. While SunPower intends to cut down self development of projects and focus on a few key markets such as U.S., Latin America and France in order to weather the downturn, the rooftop distributed solar generation segments could also provide the firm with some near-term respite.

See our complete analysis for SunPower

We have a $15 price estimate for SunPower, which is significantly ahead of the current market price.

The Commercial And Residential Sectors Could Provide Respite

SunPower’s distributed solar operations accounted for about 60% of its revenues during H1 2016, and it is possible that its contribution could increase in the near term, driven by the commercial solar segment, which primarily caters to rooftop installations for businesses. The firm has a commercial pipeline of over $1.3 billion, and the commercial solar market is expected to expand at a CAGR of 20% through 2020. SunPower has been addressing this market with a cost-effective integrated solution called Helix, which includes panels, dual-tilt racking, factory installed connectors, cable management system and monitoring software that significantly cuts down on installation time.

The residential solar market could also provide some revenue stability, as it entails selling several small systems throughout the year – unlike the utility-scale business, which is driven by large contracts. The European residential solar market, which is a key market for high-end solar products, has been seeing signs of stabilization of late after a tough couple of years that saw significant subsidy cuts. ((SunPower Q2’16 Earnings Presentation)) However, the U.S. market could see some headwinds, given net metering reforms in states such as Nevada and slowing sales in California, the largest solar market in the U.S.

That said, SunPower’s strong product portfolio should position it well in the market. As with the commercial space, SunPower has been focusing on deploying a standardized solar solution in the residential market, called Equinox, which lowers installation times and costs while providing better energy yields. Equinox accounted for about 50% of the firm’s new orders during Q2. SunPower will be also realigning its manufacturing operations to increase production of its X-Series panels, which have the highest conversion efficiencies in the business, by as much as 100 MW by the end of next year. ^[1]

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

1. SunPower (SPWR) Tom H. Werner on Q2 2016 Results – Earnings Call Transcript, Seeking Alpha, August 2016 [↩]