How Significant Is The Residential Business For SunPower?

+168.26%
Upside
3.00
Market
8.05
Trefis
SPWR: Sunpower logo
SPWR
Sunpower

SunPower‘s (NASDAQ:SPWR) residential business has faced some headwinds in recent years, amid sluggish shipments, particularly to the U.S. market where regulatory uncertainty surrounding net metering and lower electricity prices have impacted shipments growth. However, we believe that the residential business will remain important to SunPower in the long term as distributed solar installations grow, driven by adoption of behind-the-meter storage and increasing economic viability. Our $10 price estimate for SunPower assumes that residential sales will grow to levels of around 500 MW by 2024, with margins also improving to about 15% in the same timeframe. We believe that residential ASPs will remain higher compared to commercial and utility-scale ASPs, with prices also declining at a slower pace. If the residential shipments were to remain flat at current levels (the blue line in below charts), recording no growth over our forecast period, our price estimate for SunPower would decline by about 20% to $8. We have created an interactive model that details how changes residential shipments, margins and ASPs could impact SunPower’s price estimate.

SunPower’s Residential Business Has Faced Headwinds

SunPower’s residential business has faced some headwinds in the past year, due to sluggish shipments – especially to the U.S. market, as mentioned above. The chart below shows the company’s historical residential shipments, as well as our forecasts for those shipments. It also shows our downside case forecasts, for the scenario described above.

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However, The Long-Term Picture Remains Intact

The company’ residential business stands to gain in the long run as power system technologies improve, causing more customers to consider distributed solar systems. Behind the meter storage could increase from 15% of installed capacity in megawatts, to over 50% of the market by 2021. We estimate that SunPower’s residential shipments will hit 500 MW by 2024.

20% Downside To SunPower’s Valuation If Residential Shipments Flatten Out

As shown below, if SunPower’s residential shipments (in watts) flatten out going forward rather than growing at the rapid pace at which we forecast them, our price estimate for the company’s stock would decline by about 20%, as shown in the scenario charts below.

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