Company Overview: SunPower Corporation (NASDAQ: SPWR) is a vertically integrated solar module manufacturer and systems installer. The company’s modules derive from crystalline silicon technology and possess the industry’s highest conversion efficiencies (the percentage of sunlight converted into electricity).

­­­­­­SPWR Details

Material Business Updates

Strategic Alliance for Customer Base Expansion: As announced on 29 July 2021, SPWR enters into a strategic alliance with Wallbox, a provider of EV charging solutions, under which new SPWR customers can opt for Wallbox EV home charger installation wherein SPWR will act as an installation provider of EV chargers for Wallbox customers and preferred storage and solar provider.

Exclusive Partnership to Cater Substantial Demand: As announced on 14 July 2021, SPWR has entered into an exclusive partnership with Woodside Homes (WH), a prominent homebuilder in the US. Considering the soaring demand for home energy storage, WH announced their offering of SunPowwer® solar and SinVault™ battery storage solutions to the buyers and owners residing in the Northern California Community.

Historical Financial Trend:

SPWR illustrated sustainable historical growth in the past three years. The Operating revenues have been stable since FY18 with consistent growth in net income. Although revenues have descended in the past five-year span, gross profits have exhibited resilience and improvements.

Figure 1: Historical Financial Overview:

Source: Company Reports, Analysis by Kalkine Group

Second Quarter FY21 Performance:

Q2FY21 performance was primarily driven by an increased customer base and residential bookings. In addition, in the quarter, the BU operation cash generation allowed early debt repayment, which brought net recourse debt from US$561 million PcP to US$283 million. As a result, operating expenditure per watt declined to US$0.36 relative to US$0.41 PcP.

Figure 2: Quarterly Performance:

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY20 Performance:

Rising Revenue: Total revenues inclined by 3% YoY due to cash deals and sale of the development sales projects and increased volume of construction activities in EPC arrangements. The total cost of revenue increased by 3% to cater to the increased top-line growth.

Improved Operational Efficiency: Residential, Light Commercial (RLC) segment posted gross margin at 18%, relative to 13% PcP, due to better product mix and higher loan and cash channel sales volumes. Commercial and Industrial Solutions (CIS) segment showed gross margin improvement at 11%, relative to 3% PcP, primarily driven by increased EPC projects and higher cash sales.

Figure 3: Annual Performance:

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~72.89% of the total shareholding. TotalEnergies SE and The Vanguard Group, Inc. holds a maximum stake in the company at ~­­­53.21% and ~4.82%, respectively.

Figure 4: Top 10 Shareholders

Key Metrics:

SPWR’s liquidity profile remains strong amidst increasing capacity expansion programs. In addition, gross margins have increased substantially in recent years, exhibiting high operational efficiency. As a result, SPWR’s high asset turnover with prudent liquidity profile exhibit high resilience and return prospects.

Figure 5: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

The Gap in Power Delivery: High profile power outages, grid failure and mounting electricity bills in the US increase homeowners’ inclination towards in-house solar energy generation. The residential solar installation increased by 11% in 2020, clocking a record of 3.1 gigawatts, as per the press release by the company.

Consumer Adoption of EV: Automotive industry is phasing into the EV market after high consumer adoption. SPWR can facilitate EV owners with well-equipped home EV chargers. As a result, Deloitte estimates EV sales growth from 2.5 million units in 2020 to 31 million+ units in 2030, accounting for ~32% of new car sales.

Guidance: The Q3FY21 guidance includes the impact of CIS project timing and surging investments in new growth initiatives, primarily residential. For FY21, Adjusted EBITDA guidance includes $10 million incremental expenditure in digital initiatives and customer experience to accelerate SPWR’s residential business growth.

Figure 6: Company Guidance

Source: Company Reports, Analysis by Kalkine Group

Key Risks:

Product affordability remains a crucial challenge for solar equipment and storage companies, which dampen customer growth. Additionally, due to the high future growth prospects of the industry and curtailing barriers to entry, competition risk remains high.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

SPWR has delivered 3-month and 6-month returns of ~-7.167% and ~-35.103%, respectively. The stock is trading below the average of the 52-week high price of US$57.52 and the 52-week low price of US$9.54, indicating an opportunity for accumulation. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). The company might trade at a slight premium compared to its peers’ median EV/Sales (NTM trading multiple), considering profitable strategic alliances. For the purpose of valuation, few peers like First Solar Inc (NASDAQ: FSLR), Solaredge Technologies Inc (NASDAQ: SEDG), Canadian Solar Inc (NASDAQ: CSIQ) have been considered. Considering the under penetration of solar equipment and storage products, growing demand for electric vehicles and energy storage solutions, and potential upside as indicated by the valuation, we give a “Buy” recommendation on the stock at the current market price of $21.76, up by ~3.92% on 23 August 2021.

SPWR Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level wherein the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level wherein the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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