The solar market is growing at a fast pace, and SunPower (NASDAQ:SPWR) is making the most of it. The company, which designs, manufactures, and delivers solar systems to residential, commercial, and utility customers, is on a terrific run in 2014. SunPower shares have gained close to 25% so far this year, and given its attractive valuation and long-term prospects, it won't be a surprise if it continues outperforming.
Consistent performances and solid prospects
SunPower has delivered impressive and consistent results over the past four quarters, led by strong demand for its industry-leading high-efficiency solutions. The company has delivered an average earnings beat of around 133% for the last four quarters.
Looking ahead, the trend looks set to continue as SunPower is experiencing strength across its end-markets, especially Japan, which accounted for 22% of its total shipments last quarter. With the increasing demand for renewable and clean sources of energy, SunPower is gaining traction in the solar market. There are many players in this industry, but SunPower counts on its innovative products to stay ahead of the rest and drive growth.
The company is experiencing considerable volume growth in its C7 project. The C7 basically combines SunPower's T0 single-axis tracker with rows of parabolic mirrors that reflect light onto modular SunPower Maxeon solar cell receivers, concentrating the sun's energy by 7 times. This will increase its efficiency remarkably. The company has already bagged a 70 megawatt order from its joint venture in China, and expects this to be one of its key growth drivers in the days ahead.
In addition, SunPower also received a certification from the National Renewable Energy Laboratory (NREL) for a 25% efficient solar cell that's made on its pilot line running the Fab 4 technology. This will be beneficial for SunPower in the long run as high-efficiency sales, produced with fewer process staffs, will enable it to decrease its cost of producing energy. This benefit will in turn be passed on to its customers, and help SunPower improve its margins further.
Efficiency is delivering results
These are some of the reasons why customers are preferring SunPower over its rivals. According to management:
On a typical space-constrained rooftop, SunPower panels produce over 50% more energy than conventional solar systems in the first year of operation. By year 25, this advantage will grow to 100% due to superior reliability and much lower performance degradation rates. The bottom line is that SunPower customers generate over 75% more energy over the lifetime of their systems. As customers and financiers become more educated about panel degradation rates and system residual value, SunPower's technology advantages and associated economic benefits become increasingly clear.
Degradation is something that customers normally don't think of initially, but it is simple science that everything has a life span and so do the solar panels. As SunPower's products are tuned to deliver more value to customers and financiers over the long run, it is clear why its products are finding solid traction in the market.
Moreover, SunPower has a diversified product line up. Management claims that it is the only solar company with cutting-edge expertise across all application segments. This helps the company to customize its strategies depending on the market need, local conditions, and segment attractiveness. Currently, SunPower is gaining strength in various locations such as North America, Middle East, Latin America, Africa, China, Japan etc.
Its marketing strategies are tailored to give it an edge over its rivals. SunPower provides its customers with a wide array of financing options, which include cash sales, secured and unsecured loans, PPAs, and leases. These are all customized according to the individual need of every customer. In addition, its product offerings not only include complete solar solutions, but also performance monitoring and energy assurance products that enhance customers' ownership experience.
In fact, SunPower is extremely focused on improving its customers' ownership experience. Consequently, it has launched a customer portal, which allows its customers to track energy production, see their savings, view educational videos, and get their questions answered. The company has received a great response from this portal since its launch. This is one of the many strategic initiatives that the company has undertaken as it believes that "when we deliver a superior customer experience, we get a customer for life."
Valuation and conclusion
Going forward, management believes that it is well-positioned for growth and its strategies might help it to become an industry leader in the days ahead. As the long term opportunity for solar power generation is huge, along with the current as well as upcoming projects up its sleeve, SunPower looks set to improve.
In addition, the company is impressively valued. SunPower trades at a trailing P/E ratio of 26, and its forward P/E is lower at 23. This indicates that its earnings are expected to grow going forward, while a PEG ratio of 0.98 indicates that it is undervalued. Moreover, SunPower's earnings are expected to grow at a terrific pace over the next five years, clocking a CAGR of 30%. This is better than the growth of 12.5% seen in the last five years. So, investors should definitely consider an investment in SunPower as it looks well-positioned for the long run.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.