SunPower Q3 Earnings Preview: Power Plant And Commercial Business In Focus
SunPower (NASDAQ:SPWR), the second largest U.S. solar equipment manufacturer, is expected to publish its Q3 2016 results on Wednesday, November 9. We expect the company’s adjusted revenues and earnings to improve on a year-over-year basis, as it executes on its 2016 power plant project pipeline and also benefits from stronger demand for its commercial solar products. However, we expect things to have remained lackluster on the business development front, amid a slowdown in power plant contracting activity and tough pricing conditions in the global solar markets.
We have a $15 price estimate for SunPower, which is significantly ahead of the current market price.
See our complete analysis for SunPower
- SunPower has a total of four solar projects – Prieska, Boulder, Henrietta and Rio Bravo – with a total capacity of 389 MW that are under contract to be completed this year. We expect these projects to remain the key driver of earnings for Q3. The firm also has another four projects (total 186 MW) that it is building out, but is yet to sell. Two of these projects – Stanford and Turlock – are on the ROFO (right of first refusal) list for SunPower’s yieldco, but it is unlikely that they will be monetized this quarter.
- Earnings could also be bolstered by SunPower’s commercial solar segment, which primarily caters to rooftop installations for businesses. Commercial deployments, in terms of megawatts recognized, stood at 59 MW in Q2, and the firm has guided an increase of over 50% sequentially. SunPower should also benefit from the ramp in production and stronger demand for its commercial integrated solution called Helix. The firm has a commercial project pipeline of over $1.3 billion and this should provide for reasonably strong near-term revenue visibility.
- We expect things to remain challenging on the business development front, as solar power plant contracting activity has been weak, amid stronger competition from independent power producers and smaller players, as well as the recent headwinds caused by the bankruptcy of SunEdison, which has driven up the required rates of return that solar investors are seeking, putting pressure on systems pricing.
- SunPower is planning to restructure its operations, carrying out headcount reductions of about 1,000 employees at its Philippines manufacturing operations, while also reducing about 200 positions in its downstream and corporate functions. The firm expects to record $30 million to $45 million in charges relating to this, a bulk of which will be recognize in Q3. This is likely to hurt the firm’s GAAP earnings for the quarter.
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