SunPower Corporation (NASDAQ:SPWR) is one of the leading global solar companies with a history of designing and delivering unmatched solar cells and panels across the globe. The company is leading the solar industry due to its highly efficient solar panels and utility-scale solar power blocks. Over the last few years, the solar industry has experienced upturn, due to which SunPower stock has also been performing well - it has gained more than 98% over the last twelve months. The stock fell in April for a short period, before gaining its upward momentum again by the end of the month. The companies in the sector have seen substantial gains due to increased demand and saving on the costs. SunPower has a very strong position in the domestic as well as international solar market, and the expected growth in this segment is likely to result in further growth for the company.
The Growth Story
Throughout their history, solar power companies have been struggling really hard to increase their share in the utility energy market. However, the increased technological progress, long-term reliability and guaranteed performance have changed the solar trend over the last few years. SunPower has been a market leader in the solar industry for nearly 30 years, and managed to sustain its position. The company operates in two business segments: the Utility and Power Plants [UPP] segment and Residential and Commercial [R&C] segment. The company offerings include a number of products and services with solar power products and solar power systems. Moreover, the company is vertically integrated, and designs, manufactures and delivers high-performance solar systems globally, acting as a one-stop shop for residential, commercial and utility-scale power plant customers.
The increasing local and global solar power demand has created several opportunities for the companies operating in the sector. Moreover, the residential customers are increasing greatly after the initiation of long-term lease programs by the solar companies. SunPower also facilitates its residential customers with up to 20-year lease contracts, due to which the company has been able to increase its residential leases revenues by 4,400% over the last three years. SunPower recently reached an agreement worth $200 million with Admirals Bank in order to expand the financing options available to homeowners.
Source: SEC Filings
With such market-leading product expertise, the company has been able to grow its revenues substantially over the last five years - consistent growth in the market is creating an opportunity for increased margins over the next few years.
Source: SEC Filings
Efficiency and costs are two of the most important factors in the solar energy sector. SunPower leads the solar power market by achieving the highest-efficiency solar products through its Maxeon solar cells. These cells are silicon-based, and achieve an average efficiency of around 21%, beating all other industry peers. This has proved to be a clear advantage for the company, as the rooftop systems have limited application area; hence, high-efficiency solar cells are given preference over commodity cells to generate more power from a given area. The Maxeon cells are also expensive, compared to other product offerings by competitors; however, the overall costs are much reduced, leaving the company in with a considerable competitive advantage. Moreover, the Levelized Cost of Energy [LCOE] of Maxeon is also $0.14 per kilowatt hour, as compared to $0.15 per kilowatt hour of a commodity cell. Further, the company also launched X-Series solar panels in the last year, made with Maxeon Gen 3 solar cells, for commercial usage. The increased efficiency and reduced LCOE will enable the company to score more rooftop contracts in the coming years.
Solar companies derived huge profits in the last year, due to strong demand and an increasing trend in product prices. SunPower also managed to produce 1.0-1.3 Gigawatts [GWs] of solar panels in the last year, reaching its full capacity during the period. However, the company has planned to increase its capacity by producing 350 MWs of panels a year at the Philippines factory - which will be operational by 2015. Moreover, this production facility will also benefit the company, as SunPower anticipates higher demand from the nearby emerging Asian markets. Further, the company estimates the global solar power demand to increase over the next few years and reach around 58 GWs by 2016, compared to 37 GWs in the last year.
Source: First-Quarter Earnings Slides, April 2014
The dream of clean and alternate energy fuels is about to come true, as the solar industry is collaborating with other industry domains. SunPower recently announced a long-term collaboration with KB Home (NYSE:KBH) to initiate a pilot program by installing innovative energy storage solutions at certain KB Home locations in California. The battery storage services are highly complementary to residential solar systems, as they help to reduce the monthly cost of energy, providing a hedge against increasing utility costs. Moreover, the company also anticipates substantial solar power demand in Australia, which has higher solar power penetration rates, with more than 3.4 GWs solar panels installed on approximately 1.4 million homes, than other parts of the world.
The growth in the demand for the clean energy has allowed the companies to reap substantial benefits. Going forward, clean energy is going to play even bigger role in the total energy generation. Furthermore, the growth in the domestic solar energy installations is extremely positive, and it will continue to drive growth for the companies operating in the sector. We believe SunPower is well-positioned to benefit from the increased demand in the sector.
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